Rural Finance

Annotated Bibliography Series
Series No. 3
Rural Finance
Compiled By
Tariq Md. Shahriar
Institute of Microfinance (InM) E-4/B, Agargaon Administrative Area,
Sher-E-Bangla Nagar, Dhaka-1207.
Bangladesh.
May, 2007.
CONTENTS General Topics 1 Rural credit 57 Formal Finance 77‐148 ˆ General 77 ˆ Development Banks 89 ˆ Commercial Banks 107 ˆ Agricultural Finance 112 ˆ Savings Mobilization 123 ˆ Sustainability 137 ˆ Repayment Behavior 145 149‐187 Informal Finance ˆ General 149 ˆ ROSCA 163 ˆ Self‐Help Group 175 ˆ Informal Lending 180 ˆ Co‐operatives 185 Formal‐Informal Finance Interlinkage 188 Other Topics 196 Index by Author 217 General Topics
Adams, D.W.; Graham, D.H. & Von Pischke, J.D. (editors). (1984). “Undermining
Rural Development with Cheap Credit”. Boulder: Westview Press.
Adams, D.W. & Vogel, R.C. (1986). “Rural financial markets in low-income
countries: Recent controversies and lessons”. World Development, Volume 14,
Issue 4, April 1986, Pages 477-487.
Abstract: Recently some researchers have criticized traditional agricultural credit policies in lowincome countries. This article identifies the major points of controversy between traditional views
and these new views and also summarizes the primary lessons learned from these controversies.
Savings mobilization, more flexible interest rate policies, less loan targeting, and greater emphasis
on improving the quality of financial services in rural areas are new views that are emphasized.
Adams, D.W. (1988) “Distinctive Features of Rural Financial Markets in Asia”. In
Farm Finance and Agricultural Development. Tokyo: Asian Productivity
Organization. p. 25-40.
Adams, D.W. (1988). “The Conundrum of Successful Credit Projects in
Floundering Rural Financial Markets”. Economic Development and Cultural
Change 36(2): 355-367.
Adams, D.W.; Chen, H.Y. & Lamberte, M.B. (1993). “Differences in uses of rural
financial markets in Taiwan and the Philippines”. World Development 21, no. 4:
555-63.
Abstract: Despite entering the post World War II period in similar economic situations, by the early
1990s, the rural sectors in both Taiwan and the Philippines differed greatly. The rural sector in
Taiwan displayed many of the features found in developed economies, while in the Philippines,
poverty was still widespread. This paper argues that the performance of Formal Rural Financial
Markets (FRFMs) in the two countries explains an important part of the difference in rural
development. The paper considers the success of FRFMs as being indicated by the ability to
provide a sustained flow of services to an expanding number of people. The background to the
development of rural finance in the two countries is discussed, taking the examples of cooperatives
and government organizations as lending agencies. The superior performance of FRFMs in Taiwan
is seen as a result of emphasizing the efficient allocation of resources, while in the Philippines,
FRFMs were used to handle target loans and subsidies. The paper highlights 10 specific policies
that help explain the superior performance of rural financial markets in Taiwan. The paper
concludes that farmers in low-income economies will find it increasingly difficult to invest without
strong dependable FRFMs.
Adams, D.W. (1995). “From Agricultural Credit to Rural Finance”. Quarterly
Journal of International Agriculture 34, no. 2: 109-20.
Abstract: Forty years ago, credit was thought to be a critical part of a package of inputs needed to
boost agricultural production. Initial results of donor and government efforts to expand agricultural
credit were so encouraging that by the early 1950s some experts felt they could transplant credit
programmes from developed countries that would succeed in most low-income countries.
Optimism persisted for several decades until the early 1970s when problems began to surface in
numerous credit programmes. The gravity of these problems became more apparent and
pessimism grew until in the late 1980s major donors began to abandon agricultural credit efforts
and instead increasingly focused on rural finance. This contribution discusses the evolution of
agricultural credit into rural finance. It gives also an explanation for why this evolution occurred,
and then summarizes the lessons that have been learned along the way. The paper concludes by
outlining the major challenges for future financial infrastructure building in rural areas.
Adams, D.W. (2001). “AfDB Policy Guidelines for the Rural Financial Sub-sector”.
African Development Bank.
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ADB. (1997). “Proposed Loan: Rural Financial Institutions Project. Kyrgyz
Republic”. RRP: KGZ 28395. Manila: ADB. July.
ADB. (2004). “Technical Assistance to the People’s Republic of China for Rural
Finance Reforms and Development of Microfinance Institutions”.
Abstract: This document provides details of the Technical Assistance (TA) proposed by the Asian
Development Bank (ADB) to provide advisory support for rural finance reforms and the
development of microfinance institutions (MFIs) in Inner Mongolia Autonomous Region (IMAR) and
Guizhou Province of the People’s Republic of China. The document outlines some of the features of
the rural financial system of the IMAR and Guizhou Province:
•
Rural Credit Cooperatives (RCCs) are the only financial institution serving rural areas;
•
RCCs have long been influenced by various levels of government and suffer from problems
such as unclear ownership structure, poor corporate governance, inadequate business
scope and internal control.
The document then identifies some of the issues faced by the two regions:
•
Long distances and economic disparity;
•
Limited operational scale, poor financial performance and weak institutional capacity;
•
Policy constraints;
•
Poor corporate governance.
Finally, the document provides details of the methodology, costs and implementation
arrangements for the TA.
AFRACA. (2004). “Financial Sector Reforms, Central Banks and Rural Finance”.
Abstract: This document focuses on financial sector reforms in Africa and their impact on the role
and rural finance policies of central banks. As structural adjustment progressed through the 1980s
an 90s, it became apparent that central banks and governments still have a positive role to play in
rural financial activities:
•
One of the key objectives of the "reformed" central banks is to promote the development
of financial markets;
•
70-90% of population lives and works in rural areas;
•
There are appropriate policies for the promotion, regulation and supervision of semi-formal
and informal rural finance institutions.
The book adresses these issues with the experiences of 11 participants from English speaking subSaharan in a 1999 conference. It offers a further focus on the safety of savings in microfinance
institutions (MFIs) and the potential threat for financial sector stability due to failures of MFIs.
Agabin, M. & Daly, J. (1996). “An Alternative Approach to Rural Financial
Intermediation, The Phillippine Experience”. Chemonics International occasional
paper, May.
M.U. (1984). “Financing Rural Industries in Bangladesh”. The
Bangladesh Development Studies, Vol.12, No 1&2, Special Issue on Rural
Ahmed,
Industrialisation in Bangladesh.
Alvarado, J. & Galarza, R. (1999). “ANED, Bolivia:
Microleasing”. Inter-American Development Bank (IADB).
Pioneering
Rural
Abstract: Featured as chapter 10 in the IDB publication Promising Practices in Rural Finance, this
case study examines the microleasing programme that ANED (Asociación National Ecuménica de
Desarollo) began in 1997. ANED’s financial leasing programme is an innovative mechanism for
small producers of Bolivia’s rural areas to finance investment capital such as tractors, farm
ploughs, motorised pumps and other fixed assets. By financing the acquisition of fixed assets, and
ANED's practice of purchasing directly from the supplier, this alternative to credit circumvents
some of the most important bottlenecks small producers often face in expanding their production
and productivity possibilities. Inherent to this financial product is a solution to the lack of collateral
that often limit small producers' access to financial services. Financial leasing also lowers portfolio
risks for ANED. The results of this programme are analysed from the perspective of its outreach
and financial performance. This case study demonstrates how ANED has succeeded in creating an
innovative financial product that was well received and appears to have great perspectives for
future consolidation as an alternative for a large sector of small rural producers. The study also
identifies challenges to the expansion of this programme (e.g., funding availability, product
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promotion, market exploration, training for inexperienced clients, legal framework and regulation,
insurance mechanisms for leasing products) and draws conclusions based on these challenges.
Arias, D. & Covarrubias, K. (2005). “Agricultural Insurance in Mesoamerica: An
Opportunity for Deepening Rural Financial Markets”. Environmental Division
Region II, Inter-American Development Bank, Washington D.C.
Barnes, C.; Gaile, G. & Kimbombo, R. (2001). “Impact of Three Microfinance
Programs in Uganda.” Washington, D.C.: AIMS.
Abstract: This assessment of three USAID-financed microfinance programs in Uganda centers on
the impacts of participation and whom the programs reach. The assessment focuses on the clients
of FINCA (Foundation for International Community Assistance), FOCCAS (Foundation for Credit and
Community Assistance), and PRIDE (Promotion of Rural Initiatives and Development Enterprises).
It covers clients and a non-client comparison group in rural Mbale district, the capital city of
Kampala, and Masaka town and its periphery. The results indicate that these programs are
reaching their target groups. Moreover, the findings indicate that program participation leads to
positive impacts.
Basu, P. & Srivastava, P. (2005). "Scaling-Up Microfinance for India's Rural
Poor". World Bank Policy Research Working Paper No. 3646.
Abstract: This paper reviews the current level and pattern of access to finance for India's rural
poor and examines some of the key microfinance approaches in India, taking a close look at the
most dominant among these, the Self Help Group (SHG) Bank Linkage initiative. It empirically
analyzes the success with which SHG Bank Linkage has been able to reach the poor, examines the
reasons behind this, and the lessons learned. The analysis in the paper draws heavily on a recent
rural access to finance survey of 6,000 households in India, undertaken by the authors. The main
findings and implications of the paper are as follows: India's rural poor currently have very little
access to finance from formal sources. Microfinance approaches have tried to fill the gap. Among
these, the growth of SHG Bank Linkage has been particularly remarkable, but outreach remains
modest in terms of the proportion of poor households served. The paper recommends that, if SHG
Bank Linkage is to be scaled-up to offer mass access to finance for the rural poor, then much more
attention will need to be paid towards: the promotion of high quality SHGs that are sustainable,
clear targeting of clients, and ensuring that banks linked to SHGs price loans at cost-covering
levels. At the same time, the paper argues that, in an economy as vast and varied as India's,
there is scope for diverse microfinance approaches to coexist. Private sector microfinanciers need
to acquire greater professionalism, and the government, too, can help by creating a flexible
architecture for microfinance innovations, including through a more enabling policy, legal and
regulatory framework. Finally, the paper argues that, while microfinance can, at minimum, serve
as a quick way to deliver finance to the poor, the medium-term strategy to scale-up access to
finance for the poor should be to 'graduate' microfinance clients to formal financial institutions. The
paper offers some suggestions on what it would take to reform these institutions with an eye to
improving access for the poor.
Bechtel, P.K.H. & Zander, R. (1984) "Providing Financial Services to the Rural
Poor: IFAD's Experience, Challenges and Evolving Approaches". Staff Working
Paper No. 16, International Fund for Agricultural Development, September 1994,
35 pages.
Bouman, F.J.A. (1989). “Small, Short and Unsecured: Informal Rural Finance in
India”. Oxford: Oxford University Press.
Bouman, F.J.A. & Hospes, O. (1994). “Financial Landscapes Reconstructed: The
Fine Art of Mapping Development”. Boulder, Colorado: Westview Press, Inc.
Abstract: The book examines the changing emphasis in the policy frameworks of rural financial
intermediation in developing countries, including the distribution of cheap credit via specialized
farm credit institutions, to the building of linkages between banks and savings groups, to attempts
to use traders or NGOs as new conduits of financial lending. It comprises revised versions of 22
papers presented at the seminar "Financial landscapes reconstructed" held in Wageningen, The
Netherlands, November 17-19, 1992. It is argued that the study of financial landscapes in
developing countries requires a multidisciplinary approach, combining knowledge of financial
technologies with agroeconomic, political-administrative and sociological insights. The book is
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divided into three parts: Part one provides a background for the following papers and places the
recent changes in context. Part two examines the development of rural finance, in particular the
importance of the informal sector. Part three provides a number of case studies which focus on
financial structures in Sri Lanka, the Philippines, Thailand, India and Indonesia.
Branch, B. (2003). “Credit Union Rural Finance: Sicredi Brazil.” Paper presented
at the World Bank’s Rural Finance Week, Washington, DC, 12 March.
Buchenau, J. (2003). “Innovative Products and Adaptations for Rural Finance”.
paper presented at Paving the Way Forward for Rural Finance: An International
Conference on Best Practices, organized by USAID, Washington D.C., June 2-4,
Abstract: The paper is about innovations in rural finance. It presents financial products and
innovations, which improve the management of these products. It gives some details on products
designed to finance farmers, such as agricultural investment loans or loans against warehouse
receipts, and on products geared to serve rural households in general that include adapted
microenterprise loans, savings and remittances. It explores innovations in processes based on new
technologies like credit scoring or the use of handheld computers in loan analysis and design. It
reviews the characteristics of households and agricultural enterprises as well as the conditions for
sustainable development of the financial institutions that serve them. Innovations are evaluated
based on their contribution to expanding the frontier of rural finance, either by reducing the
transaction or risk costs of the market participants or by increasing the investment capacity of the
clients who use them. Based on experiences gained with innovations in different rural settings,
suggestions are given to donors, governments and to the providers of financial services on how to
decide which innovations to pursue, and on how best to support the process of innovation.
Buchenrieder, G. & Heidhues, F. (1998). "Transformation and Rural Finance".
CERT Working Paper No. 98/12.
Abstract: In the process of transformation from a centrally planned to a market-orientated
economy, the domestic financial sector plays two important roles. First, the financial sector itself
has to be fundamentally restructured, and second, its efficient functioning is a crucial precondition
for the necessary economic transformation. During the central-planning era, the financial sector
typically carried out fiscal functions, namely it distributed subsidies and supported production
plans. In a market-orientated economy, this fiscal function of the financial sector has to be altered
to one of financial intermediation, in which the financial intermediaries mobilize, and efficiently
allocate, capital. This includes the selection and monitoring of investment projects. In addition to
the more general set of problems associated with macro-economic instability, which slows down
the development of the financial market overall, rural financial institution building faces specific
obstacles. These obstacles include difficulties relating to the provision of credit collateral due to an
unclear land property situation; the relatively high transaction costs related to supplying financial
services to small enterprises, the still prevalent misuse of the financial sector to supply subsidies
to bankrupt state enterprises and the related poor financial discipline and credit repayment
behaviour. The consequence is the development of weak financial intermediaries with large
portfolios of non-performing loans. Also, these intermediaries fail to address the medium- and
long-term credit demand of private enterprises for capital investments. At the macro-economic
level, reforms and innovations are necessary to foster economic stability and public confidence in
the reliability and efficiency of the domestic financial sector. This includes the establishment of an
independent central bank and effective internal and external mechanisms for the control of
banking operations. At the level of the financial intermediaries, the restructuring of the
organization and its management and the adoption of innovative financial instruments are
necessary in order to increase the efficiency of financial intermediation. More efficient financial
intermediation will allow the needs of cost-intensive market segments formerly ignored by
commercial banks, such as the rural clientele, to be addressed.
Burkett, P. (1989). “Group lending programs and rural finance in developing
countries”. Savings and Development 13, no. 4: 401-19.
Abstract: The paper derives its inspiration from the renewed interest in group lending as a method
of providing credit for small farmers in developing countries. The establishment of group lending is
seen as a partial response to the apparent failure of previous subsidized loan projects to meet set
objectives. Group lending reduces risks, lowers administrative and transaction costs; and it is
argued that its design and evaluation should reflect the goal of improving the quality of rural
financial services. The functions of group lending schemes are discussed in relation to financial
development, informal finance and the proper goal of rural finance projects. The mechanisms by
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which interest rate ceilings and others have stunted the potential contribution of group lending to
rural finance development are highlighted. The conditions for a successful use of joint liability as
loan security, the proper role of savings mobilization and informal finance schemes are also
discussed.
Carter, M. & Waters, E. (2004). “Rethinking Rural Finance: A Synthesis of the
Paving the Way Forward for Rural Finance Conference”. Madison: University of
Wisconsin, BASIS Collaborative Research Support Program.
Abstract: The conference paving the Way Forward for Rural Finance, held in Washington DC, June
2003, brought together academics, donors, practitioners, and development professionals to
discuss successes and failures from past involvement in rural finance, and to explore creative
solutions to the problems that constrain rural financial market development. This conference was
meant to encourage a reengagement and a rethinking by donors and practitioners in the field of
rural and agricultural finance. This paper represents a synthesis of ideas that emerged from the
conference. The ideas here are not intended as a comprehensive list of either the constraints or
possible programming options. Instead, this synthesis puts forward a way of thinking about rural
finance and proposes concrete programming options that flow from this conceptualization of the
rural finance problem. Conclusions and recommendations presented here do not necessarily reflect
USAID policy.
Catholic Relief Services. (2001). “Project for the development of rural financial
markets and of products: final report Nicaragua”. USAID Mission to Nicaragua.
CGAP. (2003). “Financial Services to the Rural Poor”.
Abstract: This Brief sets out to distinguish between the terminology of microfinance, rural finance
and agricultural finance. The common ground is found in need to ensure the provision of financial
services for the rural poor. The Brief goes on to examine the constraints which make financial
servies difficult to provide in rural areas and the challenges that donors face in supporting the
development of such services. Donors have traditionally equated rural finance with agricultural
credit, seeing it as an input to achieve agricultural production targets or other project objectives.
This supply driven approach has been largely discredited but donors are frustrated by the lack of
alternative models, with the result that agricultural finance is virtually ignored in many agencies.
This Donor brief makes a number of suggestions of how donors can improve their contribution to
rural financial service provision, e.g. building staff capacity, determining the appropriate role for
subsidies, influencing governments, helping to reform existing institutions, promoting technical
innovations and funding innovations in delivery mechanisms or products.
CGAP. (2004). “Rural Financial Services through State Banks”. Operational Note
3.
Abstract: State banks, or recently privatized state banks, offer huge potential for sustainable
expansion of financial servies to low-income populations due their existing rural presence and
extensive rural networks of branches or outlets. This note offers models for engagement and
recommendations for working with state banks.
Chalmers, G. et al. (2005). “A Fresh Look at Rural and Agricultural Finance”.
Washington, D.C.: AMAP/USAID, Rural and Agricultural Finance Note No. 1.
Abstract: This presentation highlights USAID’s approach to research and intervention in rural and
agricultural finance. The integral components of its approach are:
•
Knowledge generation through case studies, focus notes, action research;
•
Continual learning through training events, study tours and e-forums;
•
Provision of support to field missions through:
o
Decision making guides,
o
Market assessment tool,
o
Technical support on programming.
The presentation also brings forth certain critical issues that need to be explored:
•
Alternative approaches to increase access to credit for small farmers;
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•
Interventions to expand access to finance for rural, non-farm micro enterprises;
•
Strategies for expanding rural deposit mobilization.
Chao-Beroff, R. et al. (2000). “Enhancing Rural Financial Intermediation in
Ethiopia”. IFAD/World Bank.
Abstract: Poor people living in rural areas need access to credit on a regular basis so they can
build up their assets and diversify their income-generating activities. This programme is designed
to benefit poor people who have no access to basic financial services because of limited outreach
and because they have no collateral. Such people often depend on moneylenders, paying
exorbitant rates of interest and depleting their resources. By training rural poor people how to use
and benefit from financial services, the programme helps them become clients of existing
microfinance institutions, building confidence and reinforcing a culture of credit discipline. About
40,000 women will benefit from training in business skills, and about 14,000 centre and group
leaders will share experiences relating to successful microfinance activities in other parts of the
country. The programme will promote the establishment of 3,375 rural savings and credit
cooperative societies owned and managed by their members.
Charitonenko, S. & Johnston, C. (2004). “AMAP-FS Knowledge Generation Rural
and Ag Finance Research”. SEEP (Small Enterprise Education and Promotion)
Network.
Abstract: This presentation describes a broad framework for the case studies (to be) undertaken
as a part of the Rural and Agriculture Finance Research:
•
Research components include:
o
Agricultural finance (can include urban),
o
Rural non-farm finance,
o
Rural savings mobilization.
•
Each case seeks to merge the institutional perspective with the agri-commodity chain
approach.
•
Each case seeks to include consideration of the policy environment, legal and regulatory
framework as well as financial infrastructure (key support institutions).
The paper also presents an overview of the first four case-studies covering:
•
Moldova Ag Finance (credit and savings),
•
Regional Ag Leasing - Russia and other countries,
•
HortiFruti – Costa Rica, Nicaragua, Honduras, Uganda.
Chaves, R.A. & Gonzalez-Vega, C. (1996). ‘The Design of Successful Rural
Financial Intermediaries: Evidence from Indonesia,” World Development 24(1):
65-78.
Abstract: The success (outreach and sustainability) of eight rural financial intermediation systems
in Indonesia, in profitably reaching large numbers of small individual clients, is explained in terms
of organizational design. Networks of semiautonomous units use local information and contract
enforcement mechanisms to lower transaction costs. Reflecting basic concerns with institutional
and financial viability, elements of mechanism design have included compatible incentives such as
performance-based compensations (profit sharing, collection fees), efficiency wages (equivalent to
quasi-equity), and system monitoring; managerial discretion over transactions conducted at
market terms, policies to protect portfolio value, and no dependency-creating subsidies are
important. Interventions have been appropriate for the problem at hand.
Chowdhury, A.H.M.N. & Garcia, M.C. (1993). “Rural Financial Institutions in
Bangladesh and Nepal: Review and Agenda for Reforms”. Occasional Papers
Number 3. Asian Development Bank, November 1993.
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Coetzee, G. (1998). “Retail Rural Finance in South Africa: From Policies to
Practice”. Agrekon 37, no. 4: 517-27.
Abstract: In South Africa a recent government study laid the foundations for improving access to
financial services for rural people; but more is needed than simply stating the policies. It is argued
that policies do not differentiate target groups adequately. This can result in inefficient
implementation of policies. The concept of a broad range of institutional possibilities to improve
access to financial services, none of which specifically provides a conclusive model, is considered
to be realistic. The idea is to muster this range of possible forms into a coordinated effort to
increase access to financial services for rural people in all rural areas. This paper emphasises the
reality of the situation when choosing policy directions. NGOs, commercial banks and the Post
Bank do not hold the primary key to improving access to financial services in rural areas in South
Africa. Several studies discussed the broad range of possible institutional forms in the rural areas
of South Africa.
Coetzee, G. (1994). “Restructuring Rural Financial Institutions”. Agrekon 33, no.
4: 220-224.
Abstract: South Africa is in a process of change. This is also true for the agricultural sector and
thus all related services. Agricultural finance, as a segment of rural finance, is the topic of an
intended commission of inquiry. The current and intended public sector agricultural financial
support structure should be measured against a set of guidelines. These are elaborated on in this
paper. In addition, given the framework, some views are put forward as to what direction rural
finance, and specifically agricultural finance, should take, and what structure should be applicable,
given the principles as outlined. The paper concludes with some remarks about institutional
change in South Africa and the intended rural financial services commission of inquiry.
Conning, J. & Udry, C.R. (2005). "Rural Financial Markets in Developing
Countries". Yale University Economic Growth Center Discussion Paper No. 914.
Abstract: This review examines portions of the vast literature on rural financial markets and
household behavior in the face of risk and uncertainty. We place particular emphasis on studying
the important role of financial intermediaries, competition and regulation in shaping the changing
structure and organization of rural markets, rather than on household strategies and bilateral
contracting. Our goal is to provide a framework within which the evolution of financial
intermediation in rural economies can be understood.
Copestake, J. et al. (2005) “Monitoring Diversity of Poverty Outreachand Impact
of Microfinance: A Comparison of Methods Using Data From Peru.” Development
Policy Review 23 No. 6: 703-723.
Abstract: Many microfinance institutions claim to be oriented to a double bottom line, but while
methods of financial performance assessment are widely agreed the same cannot be said about
social performance. Monitoring social performance is most useful when it reveals variation in both
outreach and impact over time and between clients. Data from a village banking programme in
Peru is used to compare two methods for assessing each. On poverty outreach, we favour
monitoring of proxy indicators for clients against national household survey data, and on impact
we recommend making more use of individual in-depth interviews.
CDF (Co-operative Development Foundation).
Finance”. Hyderabad, India, February.
(1994).
“Alternative
Rural
Davis, J.R., Gaburici, A. & Hare, P.G. (1998). "What's Wrong with Romanian
Rural Finance? Understanding the Determinants of Private Farmers' Access to
Credit". Centre for Economic Reform and Transformation, Heriot-Watt University
Discussion Paper No. 98/08.
Abstract: This analysis of the determinants of private farmer access to rural finance in Romania
has two distinct aspects: (i) a quantitative evaluation of some measurable variables for example
factors affecting the amount of loans and the volume of savings; and (ii) a qualitative aspect,
concentrating on the relationship between financial service suppliers and private farmers. We also
consider the motivations underlying the participation or non-participation of private farmers in the
development of the rural financial market. We have estimated two regression models: a) to
determine the main characteristics of the private farms that have access to formal credit; and b)
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to estimate how farm income, the source and utilization of credit each impact on the actual loan
amounts obtained. The paper attempts at all times to reflect the problems that farmers have
highlighted in gaining access to rural finance in the results of our analysis.
Davis, J.R. & Hare, P.G., "Reforming the Systems of Rural Finance Provision in
Romania: Some Options for Privatisation and Change”.
Abstract: It is argued, that the National Bank of Romania should not be in the business of
providing direct finance to agriculture. The entire system of support for agriculture, in particular
the means of providing rural finance and credit needs to be reviewed, so that non-inflationary
solutions may be found. This paper will discuss the necessary reforms (directions and modalities)
of Romania's financial sector policies with regard to privatisation: (i) with special emphasis on
accelerating the pace of the economic reform mechanism in the rural areas; and (ii) consider the
possibilities of further decentralising Romania's financial market and of improving the integrity
between financial agent and client.
Dayesso, T. (2005). “Managing Costs in the Delivery of Rural Finance: The
Experience of BG MFI, Ethiopia”. Ethiopia, Luxemburg: Buusaa Gonofa.
Abstract: This presentation seeks to address important issues in the delivery of finance to rural
areas. It also describes the strategy that the microfinance institution (MFI), Buusaa Gonofaa (BG),
has employed to reduce costs. The presentation provides introductory information about BG and
rural finance. It then addresses the following questions:
•
Would context affect the cost structure of MFIs and the costs to clients?
•
How does location matter in the buying and selling of services?
•
How to reduce costs of serving rural areas that are characterized by low population density
and poor infrastructure?
•
How to become efficient in a context where there is limited diversification of income
sources among and within rural households?
The presentation recognizes that an MFI has a dual mission – of achieving profitability while also
fulfilling a social objective. It then presents the following main features of BG’s strategy to reach
these two objectives:
•
Simplicity and standardization;
•
Decentralized operations;
•
Decentralization of decision-making;
•
Use of collateral substitutes;
•
Staff management;
•
Control on personnel and administrative costs;
•
Check on operative costs.
DeLancey, V. (1992). “Rural Finance in Somalia”. in Adams, D.W. & Delbert,
A.F. (ed) Informal Finance in Low-Income Countries. Colorado: Westview Press.
De Vletter, F. (2003). “A Review of Three Successful Rural Finance Cases in
Mozambique”. Report prepared for CGAP, Washington, DC.
Diagne, A. (2000). “Towards a New Measure of Access to Credit.” Rural Financial
Policies for Food Security of the Poor. IFPRI Policy Brief No. 13. July.
Abstract: Two common approaches are used for measuring household access to credit and credit
constraints in the literature. The first method infers the presence of credit constraints from
violations of the assumptions of the life cycle/permanent income hypothesis. More precisely, the
method uses household consumption and income data to look for a significant dependence (or
“excess sensitivity”) of consumption on transitory income. Empirical evidence of a significant
dependence is taken as an indication of borrowing or liquidity constraint. The second method uses
direct information on households’ participation and experiences in the credit market to classify
them as credit constrained or not. This classification is then used in reduced form regression
equations to analyze the determinants of the likelihood of a household being credit constrained.
While inference based on the first method may not always be correct, the second method does not
allow quantification of the level of credit constraint. This brief outlines a methodology based on the
credit limit concept that allows a more satisfactory analysis of the determinants of a household’s
access to credit.
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Diagne, A. & Zeller, M. (2001). “Access to Credit and its Impact on Welfare in
Malawi.” Washington, DC: IFPRI.
Abstract: This paper analyses the determinants of access to credit and its impact on farm and nonfarm income and household food security in Malawi. It is shown that the contribution of rural
microfinance institutions to smallholder income can be limited, or negative if the design of the
institutions and their services does not take into account the constraints and demands of their
clients. A cautious and gradual strategy is recommended for the expansion of rural financial
institutions. It is suggested that rural financial institutions should focus primarily on high-potential
agricultural areas where they not only lend for production of an array of cash and food crops, but
also offer financial services for off-farm enterprises, at low transaction costs.
Dorward, A.; Poulton, C. & Kydd, J. (2001). “Rural and Farmer Finance: an
International Perspective”. ADU Working Paper ; 02/04 ed.South African
Association of Agricultural Economists.
Abstract: A wide range of institutional models and financial products are currently serving, or
attempting to serve, the poor’s demands for savings and loan services. Loan products are often
structured in ways that make them particularly unsuited to seasonal lending, unless households
have access to alternative cash sources which are not related to agricultural seasonality. However,
very few of these operate in lower density rural areas or in areas where there has not already
been some agriculturally based growth in the rural economy. Virtually none are operating in the
conditions faced by the majority of poor farmers in sub Saharan Africa offering financial products
that adequately address farmers’ needs for seasonal finance for food crop production. This is partly
due to the high costs and risks in the supply of such services, but may also reflect high risks and
relatively low returns for borrowers investing in agriculture.
Dufhues, T.; Lemke, U. & Fischer, I. (2004). “New ways for rural finance?
Livestock insurance schemes in Vietnam”. Research in Development Economics
and Policy Discussion Paper, No.5.
Abstract: In developing countries, insurance markets are usually underdeveloped. Nevertheless, if
the development path is supported by strong structures and institutions, anonymous markets will
over time replace informal insurance net-works as they are more efficient. In Vietnam, livestock is
an important household income source and has additional non-economic functions in the
households. Rural financial institutions in Vietnam financed for a long time only a small array of
agricultural investments, but frequently including livestock purchase. The absence of off-farm
investment possibilities further encouraged investment into livestock production. Livestock death
is, therefore, considered to be a main factor contributing to poverty. Farmers using credit to
purchase livestock face two risks at once: (1) losing the livestock due to disease and subsequently
(2) failure of the investment. Farmers would like to reduce the uncertainty. Nevertheless, a formal
agricultural insurance market hardly exists in Vietnam and farm households have to rely mainly on
informal mutual aid schemes. The objective of this paper is to contribute to the discussion on the
general feasibility of a livestock insurance scheme (LIS) in Vietnam. In this context the supply of
LIS is discussed. Qualitative data collection took place mainly between 2003 and 2004. Four
different types of insurance providers were selected for analyzing the supply side:
1.
2.
3.
4.
Insurance tied to credit within a state owned company,
Insurance tied to credit within a development project,
A state owned insurance company,
A private insurance company.
By selection of these different insurance providers the variety of livestock insurances offered in
Vietnam was covered. The main conclusion is that there is no insurer in Vietnam offering an areawide, sustainable animal insurance scheme. Offering sustainable livestock insurance is mostly
hampered by unreliable data on livestock mortality and by politically low set premiums.
Duong, P. & Izumida, Y. (2002). “Rural Development Finance in Vietnam: A
Microeconometric Analysis of Household Surveys”. World Development 30, no.
2: 319-35.
Abstract: This study examines rural household participation in the Vietnamese rural credit market,
the behaviour of a formal lender in response to the credit needs of households, and the impact of
credit. Data are collected from surveys of 300 households. The rural credit market in Vietnam is
quite segmented. The formal sector specializes in lending for production purposes whereas the
9
informal sector's lending is quite diverse. We show that rural households are rational in deciding
which sources to ask for a particular kind of loan. Reputation, the dependency ratio of households,
and the amount of credit applied for by the household are identified as the determinants of credit
rationing by the bank. Credit is shown to have a significant impact on household production. These
findings are important for the government if it wants to support a rural financial system that
encourages dynamic lending policies to meet farmers' demands.
Edelman, M. (1997). “The Adequacy of Rural Capital Markets: Public Purpose
and Policy Options”. Economics Staff Paper number 292 ed. Iowa: Iowa State
University.
Abstract: This testimony highlights the authors' observations regarding gaps in rural financial
markets as they relate to rural development and legislative opportunities for addressing the gaps
identified. The observations are based on the author's experiences and literature reviewed as a
member of two national expert panels organized by the Rural Policy Research Institute to provide
policy makers and staff with analysis on (1) alternative proposals for the rural development title of
the 1996 farm bill and (2) the adequacy of rural financial markets in support of rural development.
Egaitsu, F. (1988). “Rural Financial Markets: Two Schools of Thought”. In Farm
Finance and Agricultural Development. Tokyo: Asian Productivity Organization.
p. 111-122.
Egger, R. (2003). “Rural Finance - What is so Special
Intercooperation: Organisation for Cooperation and Development.
About
it?”
Abstract: This paper studies the demand, supply and environmental situation with regard to the
current status of rural finance, and recommends issues that need to be considered while
promoting rural finance products and services.
As per the paper, the current rural financial service providers include:
•
Developmental banks;
•
Developmental projects;
•
Agricultural credit, which is restricted to mainly loans for cash crop production;
•
Village banks, and saving and credit cooperatives.
The demand for rural financial services is for:
•
Safe and easily accessible savings;
•
Short and long term loans for both productive and consumptive purposes.
The paper suggests ways by which, promotion of rural finance can be made more effective, such
as:
•
Introducing a large range of products;
•
Pricing products according to actual transaction costs, profitability and liquidity
management;
•
Leveraging the social capital at the village level;
•
Introducing innovations to cut down costs;
•
Using linkages to bring the rural population closer to the formal financial institutions;
•
Adopting portfolio management practices that lead to risk mitigation;
•
Covering initial developmental costs through donor funds and investment in institution
building;
•
Promoting favorable government policies.
Evans, A.C. & Ford, C. (2003). “A Technical Guide to Rural Finance”. World
Council of Credit Unions.
Abstract: This guide discusses a spectrum of rural finance products and delivery mechanisms that
contribute to advancing the provision of the following financial services to rural areas: • Lending, •
Savings, • Leasing, • Insurance, • Remittances.
Feinstein, O. (2000). “Rural Finance and Poverty Alleviation in Central America:
Evolution and Challenges”. Rural Development in Central America: Markets,
Livelihoods and Local Governance. Ruerd Ruben, and Johan Bastiaensen, 14150. New York: St. Martin's Press, Inc.
Abstract: The paper presents a comparison between the view dominating rural finances in Central
America during the 1970s and the 'new paradigm' of the 1990s, highlighting several challenges. It
focuses on a trade-off that has emerged in the evaluation of several rural finance projects in
10
Central America: the trade-off between outreach and targeting (TOBOT). The paper analyses some
key factors behind the TOBOT, discussing possible ways to overcome it. The paper starts with a
brief presentation on the evolution of the approach to rural finances in the context of rural poverty
alleviation. The second section discusses a set of challenges associated with this evolution; and the
third and final section discusses the trade-off between outreach and targeting, and the
corresponding challenges.
Fernando, N.A. (1994). “Improving Rural Institutional Finance: Some Lessons”.
Papua New Guinea Journal of Agriculture, Forestry and Fisheries 37, no. 1: 92103.
Abstract: Fernando provides a summary of the major criticisms of the conventional approach to
rural credit. The need for a broader view and a holistic approach, and the importance of institution
building is emphasized. Subsidies in building institutional capacity essential in rural savings
mobilizations, the role of private commercial banks, and the need for directed finance programmes
are outlined.
Fernando, N.A. (1998), “White Elephants in Rural Finance in South Asia”. paper
submitted to Development Finance Conference, Frankfurt, Germany.
Abstract: In 1980, J.D. Von Pischke, in his paper titled " The Pitfalls of Specialized Farm Credit
Institutions in Low -income Countries (SFCIs)", discussed the reasons why SFCIs have been
established, their special characteristics, why do they frequently fail and their future. Von Pischke
noted that survival of particular SFCIs will be less certain and the paradigm shift in rural finance
and the successes of market-oriented rural financial institutions are likely to undermine their
position. While it is true that some SFCIs have been successfully reformed to become viable
financial institutions providing a wide range of services, a number of these institutions in South
Asia continue with little changes in their operations. The persistence of these institutions raises
some interesting issues in rural finance. Dale Adams, writing in 1995 on the subject of "Reforming
Development Banks" noted several features emerging out of successfully reformed development
banks. These features are (i) reformed development banks can relatively quickly provide financial
services to large numbers including the poor; (ii) borrowers are willing to pay relatively high
interest rates for desirable loans; (iii) rural development banks can mobilize large amounts of
funds; (iv) microfinance can be done profitably by development banks, if done carefully; and (v)
development banks are willing to aggressively seek voluntary deposits if their access to
government and donors funds is costly and limited. In the same year, Gonzalez-Vega and Graham
in their paper titled " State-owned Agricultural Development Banks: Lessons and Opportunities for
Microfinance", discussed why agricultural development banks were being considered potential
institutions for the delivery of microfinance services, particularly in rural areas. The problems of
state-owned agricultural development banks (SOADBs) have been known and discussed at least
for over 20 years. Nevertheless, nothing much has been done to reform and make them
sustainable in most developing Asian countries. The unreformed SOADBs operate in a region
where two such banks have been successfully reformed. These two are: BRI -Unit Desa system,
and the Bank Pertanian Malaysia (see Box 1). Why is that these success stories do not get
adequate attention of the policy makers in the South Asian countries such as Bangladesh, Nepal,
and Pakistan? Why do SOADBs in these countries continue to operate despite the fact that they
involve large amount of subsidies and they continue to undermine market-oriented rural financial
development? Why has it been proved difficult to actually make the necessary policy and
institutional changes? What can be done to bring reforms of these banks into the policy agnda and
drawing boards?
Fleisig, H.W. & De la Peña, N. (2003), “Legal and Regulatory Requirements for
Effective Rural Financial Markets,” paper presented at Paving the Way Forward
for Rural Finance: An International Conference on Best Practices, Washington,
D.C., June 2-4, 2003.
Abstract: Many otherwise well-designed donor and IFI programs that support the expansion of
rural finance founder because they are inconsistent with the laws and regulations of the recipient
country. This paper explores common legal and regulatory obstacles to successful projects and
discusses strategies for building legal reform into the design of such programs. In the provision of
credit, the most important legal feature in a country is its system for collecting debts: where debt
collection systems are weak, private lenders are naturally reluctant to lend. The paper first
discusses what laws and institutions form the key elements of a system of debt collection. It looks
at this framework for both unsecured (no collateral) and secured (collateral) loans. It examines the
laws required to link secured lending to unsecured lending and to establish links among bank, nonbank financial, and non-bank, non-financial creditors. It examines the use of movable property and
11
real estate as collateral for loans. The paper then turns to a number of other legal and regulatory
barriers to rural development, that are linked in different degrees of proximity to rural finance.
These include homestead exemptions, scope and coverage of the civil registry, age of majority
restrictions on contract signature, provisions in the commercial code for formalizing business,
problems in the judicial system, contract enforcement, problems in land titling procedures,
bankruptcy, the right to vote, and voter registration.
The paper concludes with a review of options for dealing with legal and regulatory issues in the
context of rural finance and rural development operations.
Fong, M.S. & Perrett, H. (1991). “Women and Credit: The Experience of
Providing Financial Services to Rural Women in Developing Countries”. Milan,
Italy: Finafrica Foundation.
Abstract: Rural women have been one of the most consistently neglected groups in development
planning and programming, and, paradoxically, one of the groups with the greatest unrealized
potential. Direct access to credit, accompanied by savings, can become a catalyst for change that
brings benefits to rural women, as well as to their families and communities. In the introductory
chapter, the reasons for direct l ending to rural women in developing countries are highlighted and
women's creditworthiness is reviewed. A review of women's informal practices of borrowing and
savings, their advantages and disadvantages is given in Chapter 2. This is followed by an overview
of women's limited use of formal financial markets for borrowing and savings, and existing
constraints on the supply of credit to women in Chapter 3. Chapter 4 discusses women's demand
for credit, its assessment and promotion, with reference to both institutional credit and to savings.
Chapter 5 provides an overview of institutional strategies for providing financial services to rural
women, either separately or together with men, with extensive case illustrations; the variety of
operational linkages that are being tried between credit and savings. The role, development and
functioning of grassroots credit and savings groups, and the factors that determine its
effectiveness in practice are discussed in Chapter 6. The concluding chapter summarizes lessons
about planning of appropriate financial services for women and the related policy implications.
Ford, C. (2004). “Synthesis of Conference Evaluations: Structure and Design of
Conference, Barriers to Rural Finance and Furthering the Dialogue”. BASIS
Collaborative Research Support Program (CRSP).
Abstract: This short paper summarizes and analyses the results of sixty responses to
questionnaires handed out at the “Paving the Way Forward for Rural Finance” conference, which
took place on June 2-3, 2003, in Washington, DC, on the initiative of USAID but with the
participation of representatives from many different countries and organizations. It provides a
useful snapshot of the concerns of the respondents, and will be helpful not just narrowly for future
organizers of similar conferences, but also for policy-makers and field workers interested in the
current trends and concerns of people working in rural finance. The paper begins with a description
of the participants in the survey, showing that more than half came from the private financial
sector and donors, and that their main interest was in learning about current innovations and
trends in rural finance, with a distinct interest in risk management, perhaps understandable given
the origins of the participants in the supply side of rural finance. A second section will be of
primary interest to organizers of future conferences, as it analyses the success of the present
conference. 80% of those surveyed rated the conference a success, ie, 4.0 or higher on a scale of
1 to 5. The author dryly observes that “holding this conference once every three decades may not
provide enough communication with key individuals.” She suggests a similar conference probably
ought to be held annually or bi-annually. Respondents were excited by the communications
possibilities opened up by the conference website. Critiques of the conference included a list of
missing topics, which would be a good springboard for creating an agenda for a follow-up
conference: these include agriculture-related issues, governance issues in financial institutions,
and donor and private bank issues, specifically how to encourage such banks to provide rural
lending. Perhaps most useful is Section 3, “Barriers to Successful Rural Finance”, which provides
an analysis of the state of rural finance as of 2003, with six different areas highlighted as barriers
to rural finance: an incomplete understanding of the financial sector of the rural economy, its
dynamics, risks, and needs; misaligned policy design; problems with government and donor
interventions; weak agribusiness due to poor rural infrastructure and missing market linkages; an
unsupportive legal and regulatory framework; and the problem of banks considering rural finance
to be too expensive and too risky. The author concludes that the agribusiness sector does not
appear to be incorporated into formal financial systems, and thus a large portion of rural financial
activities occurs unofficially, through non-transparent systems such as supplier and trade
financing. If this sort of activity were included in a lending profile of the rural sector, the author
asserts that a drop in risk levels would be observed, which would then encourage formal financial
institutions to get involved in rural finance. She also suggests that further research, in the areas of
12
field analysis, pilot testing, and information sharing, will lead to more practical and more
successful policy and product proposals. Such research, though time-consuming, would function as
an error-checking mechanism aiding the ultimate success of projects. Keeping up to date on
current trends in rural finance, and performing post-project evaluations, will help improve the
success of projects, while making sure that rural finance is kept as a separate independent entity,
different from finance in an urban setting, will make financial service providers more responsive to
the trends and needs of the sector. This paper is brief but coherent, and provides an interesting
summary of current ideas in rural finance.
FAO. (1992). “Glossary of terms for agricultural insurance and rural finance”.
FAO, Rome, Italy.
Abstract: This glossary was produced by FAO in 1992 with the intention of facilitating dialogue and
comparisons between countries on these two subject areas. It provides a wide range of definitions,
divided into two sections: 1.agricultural insurance and 2. Rural finance. It is a useful reference tool
for researchers, teachers and practitioners in the field of rural finance. The French and Spanish
versions are currently only available in hard copy.
FAO. (1994). “Rural Finance in FAO”. Position Paper by the Rural Finance Group,
Marketing and Rural Finance Service. FAO, Rome.
Fries, R.J. et al. (2003). “Making Rural Financial Institutions Sustainable”. USRepublic of South Africa Bi-national Commission.
Abstract: The provision of financial services in rural communities is a very challenging task,
especially in developing countries. This guide has been developed as part of a project assisting the
development and replication of financial service cooperatives in rural areas of South Africa. It is a
“how to” manual on designing and establishing a framework of best practice rules that will help to
ensure sound, sustainable operations in a rural financial institution (RFI). The guide first stresses
the need for a regulatory framework which enables RFIs to operate within a constructive set of
rules, with independent oversight. The writers observe that a regulatory framework can be
structured in many ways and still be effective. The important factor is to involve all the key
stakeholders in the formulation of the rules to ensure that they are acceptable and likely to work.
The guide then sets about defining supportive rules and standards that encompass best practices
of banking and will help RFIs to be sustainable. Following the discussion of each rule are questions
to consider and illustrations of generic operating rules. The issues covered include:
•
•
•
•
•
•
•
•
•
•
•
business purpose and scope of business
ownership, customers and members
profit distribution
governance – Board of Directors and conflicts of interest
capital adequacy
safekeeping of deposits
credit policies and procedures, and managing the loan portfolio
asset/liability management
interest rates on deposits and loans
accounting standards, reporting and auditing issues
compliance with other laws
The guide also provides a useful list of reports for monitoring compliance and advice on the use of
enforcement or corrective methods when unsafe, unsound and illegal banking activities are
identified. Another topic covered is that of RFIs forming relationships with one another and also
developing affiliations with commercial banks, funding sources or community interest groups. The
guide closes with a ‘sustainability checklist’, which can be used by those interested to assess the
completeness and adequacy of their particular RFI rules and standards. This interesting guide
provides a comprehensive introduction to the most important rules and standards that any
organization involved in providing financial services to small farmers, village entrepreneurs,
pensioners and others should follow. It is useful resource for government officials working in the
Ministry of Agriculture or Finance and staff of a central bank. It is also invaluable for people who
are working to establish new financial services in rural communities or who are concerned with
overcoming known weaknesses in a group of existing RFIs, as well as advisers in technical
assistance programmes aimed at improving the well being of the rural poor.
13
Fries, R.J. & Akin, B. (2004). “Value Chains and Their Significance for Addressing
the Rural Finance Challenge”. USAID.
Abstract: This paper argues that the challenge of rural finance can be met by complementing a
financial market orientation, one that focuses on financial institutions and their products, with a
product market orientation – one that focuses on rural enterprises, the value chains they
participate in, their opportunities and constraints and the financial services that they demand. The
paper states that a large percentage of financial services reach the rural sector through the value
chain and explores three such services:
•
Trader credit;
•
Contract farming/out-grower schemes;
•
Warehouse receipts.
The paper lists the following advantages and limitations of these products:
•
•
Advantages:
o
Cost-effectiveness in screening potential clients, while tapping new assets for securing
loans;
o
Increase in yields and prices and change in the way products are sold.
Disadvantages:
o
Not conducive to long-term loans needed for investment capital;
o
More interested in profits from products;
o
Not transparent in pricing.
The paper provides examples of specific objectives and interventions and concludes with a number
of lessons for donors that include:
•
Donors can identify opportunities and prioritize interventions through value chain analysis;
•
Value chain financing is useful in addressing working capital demands, but not investment
capital;
•
Actors who create linkages between small producers and downstream players are key to
expanding the access of rural enterprises to both markets and financial services;
•
Sustainable services and relationships depend on mechanisms that reinforce the mutual
benefits to buyer and seller, lender and borrower.
Fukui, R. & Llanto, G.M. (2003). “Rural Finance and Micro-Finance Development
in Transition Countries in South-East and East Asia”. Asian Development Bank
Institute (ADBI).
Abstract: Micro-finance is an emerging important financial sub-sector in Asian transition countries.
Its role is to improve financial access of the poor and small economic players and thus help them
to build assets, thereby contribute to poverty alleviation. This paper provides an overview of rural
finance and micro-finance development in transition countries in South-East and East Asia —
Cambodia, Lao PDR, Myanmar, Viet Nam, and Mongolia — focusing on the institutional evolution
and the inter-relation between policies and institutions. We find diverse potentials that formal and
semi-formal financial institution—agricultural banks, micro-finance banks, micro-finance NGOs,
financial co-operatives and other indigenous financial systems—have to reach out to the rural poor
of respective nations. Any monolithic view that expects a single type of micro-finance institutions
to dominate the rural financial markets is to be denied. To develop effective rural financial
systems, some policy implications are drawn, such as reforms of agricultural banks, adoption of
market-based policy framework, development of retail capacities of micro-finance institutions,
progressive establishment of legal and regulatory framework for micro-finance, improvement in
governance of indigenous financial systems, and the importance of savings mobilization.
Gallardo, J.; Goldberg, M. & Randhawa, B.K. (2006). “Strategic Alliances to
Scale Up Financial Services in Rural Areas”. World Bank Working Papers, No. 76.
Abstract: This publication investigates two methods that rural finance institutions (RFIs) use for
expanding financial services in rural areas, namely, strategic alliances and development
partnerships. Both strategic alliances and development partnerships involve a relationship between
a RFI and a more formal institution such as a bank, business, or NGO. A strategic alliance is
essentially a business relationship between two firms, in which both partners share in the benefits
and costs. Development partnerships on the other hand, involve one partner providing a benefit
for another partner, without reciprocation. RFIs use both strategic alliances and development
partnerships to achieve objectives such as effectively managing costs, overcoming resource and
technology constraints, and enhancing competitive position. The study focuses on the experiences
of RFIs in Guatemala, Philippines, India and Ghana, in employing strategic alliances and
14
development partnerships to overcome obstacles to market expansion and the introduction of new
products. The experience of five types of institutions which developed strategic alliances with
various up market financial institutions is reviewed, i.e. credit unions and cooperatives, rural
banks, non-bank rural microfinance institutions, postal financial networks and umbrella/apex
institutions.
Following an extensive executive summary and outline of the objectives and
constraints facing the rural finance sector, a framework for understanding and assessing strategic
alliances by applying a business world mentality to rural finance is elaborated. This perspective
sees strategic alliances as ways to gain a financial benefit or marketing goal by relieving
constraints due to resources, market presence or technology, reducing transaction and operating
costs, or gaining a competitive advantage. With these objectives in mind, the study analyzes the
following cases:
•
•
•
•
Strategic Alliances to Introduce New Products: International Remittances: Guatemala:
FENACOAC Credit Unions as the delivery service institutions under the WOCCU IRnet
international remittance program and Mexico: Caja Popular Mexicana
Strategic Alliances to Introduce New Products: Micro-insurance: Marketing yield-risk,
property-loss and life insurance products in rural areas in India (Basix), and Gemini Life
Insurance Company (GLICO), Rural and Community Banks and ARB Apex and Care-Ghana
Strategic Alliances to Expand an Existing Menu of Financial Services: The Philippines: TSPI
Development Corporation and multiple alliances and Guatemala: planned merger between
Genesis Empresarial and BancaSol
Development Partnerships: Guatemala: Development-oriented Partnerships Between
Cooperative for Rural Development of the Western Region (CDRO) and Banco de
Desarrollo Rural (Banrural), and the Philippines: Development Partnerships of New Rural
Bank of San Leonardo.
Geron, P.S. (2002). “Market-Based Credit Policies for Increased Access to Rural
Finance”. BASIS - Broadening Access and Strengthening Input Market Systems.
Abstract: This paper uses the example of the Philippines to explain how a country can implement
market-based credit policies and rationalizes subsidized directed credit programs. A shift to market
based credit from a subsidized rural directed credit program (DCPs) has been a difficult proposition
in the Philippines. Complex structures and modalities limited the outreach and access. Finally the
National Credit Council (NCC), under the department of finance (DOF), was formed with the
following mandate:
•
Rationalize government credit programs;
•
Develop better credit delivery system;
•
Encourage private sector participation;
•
Define guarantee programs and agencies.
This was supported by USAID under Credit Policy Improvement Program (CPIP). They carried out
reviews, analysis and evaluations, followed by advocacy and implementation. The advocacy was
done through:
•
Providing the Government the ownership of the policy reform;
•
Distributing notes;
•
Conducting regional consultations and working groups;
•
Building capabilities of executive, legislative and the private sector.
According to the authors, the major project implementation results were:
•
Key policy reforms adopted by the government;
•
Rationalization of DCPs;
•
Establishment of support information infrastructure.
The paper further states that challenges faced are mainly of policy reversal and uncoordinated
donor intervention. The authors list the important lessons useful for donors as:
•
Interventions of an enabling credit policy environment and infrastructure have greater
impact than the scarce donor resources.
•
Initial stakeholder support leads to long term project sustainability.
•
Sound technical studies are important.
•
It is necessary to establish infrastructure for information flow.
Gobezie, G. (2005). “Livelihoods Through Micro-enterprise Services? Assessing
Supply and Demand Constraints for Microfinance in Ethiopia”. Paper Presented at
the 3rd International Conference on the Ethiopian Economy.
Abstract: Rural financial intermediation currently constitutes a key development intervention in
many poor countries. Yet, the success achieved particularly in countries who implemented such
programmes a couple of decades ago notwithstanding, there remain many constraints limiting
both the supply and demand in very poor countries like Ethiopia. Experience from over ten years
15
of financial intermediation reveals that good intentions for expansion of supply are having
difficulties due to poorly designed regulations and policies, organizational behaviours, the incentive
problem, as well as weak capacity of institutions implementing it. Where poverty alleviation
constitutes the main development agenda, rural financial regulations and policies tend to have an
in-built rationing mechanism, targeting primarily the poorest and the disadvantaged, thus often
missing others who might also have the demand for it. While more efforts are still needed to
rectify the restrictive effects of some regulations and policies on pricing and competition, in a
situation where there is no strict supervision and monitoring of the effective implementation of the
well-intended ones, there are organizations, working without any hard budget constraints and
mixing microfinance business with charity, thus crowding out the operations of more sustainable
rural financial intermediaries. For those who are intent on implementing the rules of strict financial
intermediation, their methodologies are largely replications of those implemented elsewhere,
primarily under Grameen, with little capacity to customize it to local realities. No less challenge
also remains on the demand side. For the majority poor, the communication system in rural areas,
particularly the road network, bars them from accessing the service. Where the access is granted,
clients low skill achievement in business development dictates their business’ absorptive capacity
to remain weak. Many are risk averse, or don’t like (for cultural reasons) to venture into nontraditional activities, while others have a very low income perspective and simply don’t have the
demand for such income-improving services. Such problems manifest themselves more profoundly
on women, whose very access and benefit from the service is further limited because of problems
emanating from a male-dominated patriarchal societal system prevailing in the country. Closing
the supply and demand gap is a daunting task, but not impossible, and should involve
microfinance practitioners, government, non-government organizations, donors, etc., -- for failure
to do so would stifle efforts aimed at poverty alleviation and development at large.
Gonzalez-Vega, C. (1982). “Indonesia: Financial Services for the Rural Poor”.
Report to the United States Agency for International Development (USAID).
Washington DC: USAID.
Gonzalez-Vega, C. & Chaves, R.A. (1993). “Indonesia’s Rural Financial Markets.
Department of Agricultural Economics and Rural Sociology”. Columbus: The Ohio
State University.
Gonzalez-Vega, C. (1994). “Stages in the Evolution of Thought on Rural Finance:
A Vision from The Ohio State University”. OSU Rural Finance Program.
Abstract: The paper utilizes optimum intervention theory as a framework for interpretation of the
evolution of thought on rural finance. The paper:
•
Claims that an inadequate diagnosis of market imperfections and the failure to recognize
an incomplete physical and institutional infrastructure as a key explanation of lack of
access to credit led to the development of unsuccessful rural finance programs;
•
Examines instances of policy failure and offers recommendations for the search of
appropriate interventions;
Identifies the costs of incorrect interventions in rural financial markets and it emphasizes the
importance of institutional viability.
•
Concludes that the provision of financial services is costly. The associated costs cannot be
reduced by decree. This would require innovations in financial technologies and
institutional organization.
Gonzalez-Vega, C. (1999), “Rural Financial Markets: Challenges and
Opportunities”. paper prepared for the Project on Promising Practices in Rural
Finance, San José: Academia de Centroamérica.
Gonzalez-Vega, C. (2003). “Deepening Rural Financial Markets: Macroeconomic
Policy and Political Dimensions”. Lead Theme Paper at Paving the Way Forward
for Rural Finance: An International Conference on Best Practices, Washington,
D.C., June 2-4, 2003.
Abstract: This paper examines key features of a macroeconomic environment, policy framework,
and government and donor interventions conducive to rural financial deepening. The paper also
explores typical difficulties, encountered in political arenas, in the adoption of the required
macroeconomic and policy framework. In particular, the paper addresses specific consequences for
rural financial market development of the programs for macroeconomic stabilization, structural
16
adjustment, financial liberalization, and improvements in the framework of prudential regulation
and supervision implemented by many developing countries in the past two decades.
Gonzalez-Vega, C. (2003). “Lessons for Rural Finance from the Microfinance
Revolution”. in Promising Practices in Rural Finance: Experiences from Latin
America and the Caribbean, Mark D. Wenner et al. (eds.), pp. 53-66.
Abstract: This paper aims to highlight which institutional and technological developments hold
promise for rural finance. The author argues that over the last two decades, we have essentially
witnessed a disintegration of state-owned rural institutions. It is noted that the presence of public
agricultural support institutions and state owned intermediaries shrank due to reductions in
government expenditures and organisational reforms. Moreover, private commercial banks and
other financial intermediaries have not rushed to rural areas to fill the vacuum left by state-owned
credit programs despite the liberalisation of interest rates. Yet, the paper highlights, a
microfinance revolution is unfolding in urban areas. The coverage of urban microfinance
institutions has substantially increased and some of these institutions have been able to deliver
services in a financially sustainable manner. The question this paper aims to address is what
lessons can be learned from the successful urban microfinance institutions and applied to rural
areas. This paper begins by discussing the decline of rural finance supplies and the demise of
development banks. It also considers promising dimensions, in the form of some sources of
optimism that come from theoretical development and recent policy reforms. The paper then
moves on to analyse the challenges for rural finance and looks at the role of incentives,
information and institutions. The key part of the paper looks at the lessons that can be learnt from
microfinance institutions. In particular it points to the success of some microfinance institutions in
achieving gains in outreach and sustainability in making financial services available to poor
households and businesses. The paper states that experience confirms that a hospitable policy
environment, appropriate innovations in financial technologies, and improvements in the
institutional design of financial organisations can allow important improvement in expanding the
supply of formal financial services to broader sections of the population. Also provided is a list of
basic principles that differentiate microfinance institutions successful in rural areas and those not:
•
•
•
•
•
•
•
•
•
They do not lend only to agriculture; they consider the global demand for financial services
on the part of rural/farm households;
They further address idiosyncratic risk by relying on the income diversification strategies of
households;
They do not condition loans to specific fund uses; instead they measure repayment ability
in terms of household cashflows and they allow borrowers discretion in the use of loan
funds;
They rely on more individualised and detailed screening efforts – including risk adjusted
forecasts of crop yields and prices;
They introduce greater flexibility in terms and conditions of loan contracts that respond to
the special circumstances of agricultural activities;
They attempt to further reduce transaction costs for borrowers;
They reduce the threat of moral hazard by requiring greater borrower equity contributions
to the project;
They base cashflow forecasts and risk assessment not only on average historical
outcomes, but also on worse-case scenarios and forecasts about future conditions
They invest in better understanding of macroeconomic and sectoral patterns, in order to
address the threat of systemic risk.
González-Vega, C. (2004). "Rural Financial Markets in Mexico: Issues and
Options". Mexico Rural Economy Strategy. Chemonics International Inc.
Goodland, A. (2000). “Rural finance helping to promote sustainable credit”. UK:
Natural Resources Institute (NRI).
Abstract: Increasing access to financial services still has a role in combating rural poverty. In the
past, the narrow focus on subsidized credit for agricultural production proved unsustainable.
However, recent experiences have been more positive. By understanding the breadth of financial
needs of the poor, and modifying approaches to providing savings and credit services, financial
institutions have begun to realize the potential of the rural market. Further expansion into this
market is possible, through collaboration between the formal and informal sectors, reducing the
'distance' between institutions and their clientele, and adapting and innovating service delivery
mechanisms to local conditions.
17
Goodland, A.; Gideon, O.; Juliana, A. & Griffith, G. (1999). “Rural Finance Policy
Series No. 1”. The University of Greenwich: Natural Resources Institute.
Abstract: Improvements to financial services, both formal and informal, must be customized to
serve the needs of the poor. Thus, in designing approaches to lower costs and increase
accessibility of financial services, consideration must be given to the limitations of the poor in
making savings and using credit in productive ways. Most experience with provision of rural
financial services has focused on livelihood promotion designed to boost productivity and income
through access to cheap credit. Yet, this has minimal impact on poverty, as current programs have
proven to be unstable and are criticized for promoting unsound investments and indebtedness.
Although micro-finance holds a key place in rural economies, the poor struggle with accessing it.
This reflects a lack of information, high risks, lack of collateral, physical distance from providers
and small individual transaction requirements. These factors in conjunction with preconceptions of
the poor as being unable to save and a potential for liability, increase the cost of servicing the
poor. Three sets of issues relating to rural finance and poverty alleviation are explored; the types
of finance required by the poor, the delivery mechanisms currently in place, both formal and
informal, and the steps required to improve availability and accessibility of financial services.
Specific attention is given to women who make up 70% of classified poor.
Gore, C. (2003). “Rural Trade Finance in Southern Africa.” Presentation of
research findings to the US Agency for International Development, Washington,
DC.
Graham, D.H. (1992). “Informal Rural Finance in Niger: Lessons for Building
Formal Institutions”. in Adams D. W. and Fichett D. (Ed), Informal Finance in
Low-income Countries, Westview Press, Colorado.
Grant, W.J. & Allen, H.C. (2002). “CARE's Mata Masu Dubara (Women on the
Move) Program in Niger: Successful Financial Intermediation in the Rural Sahel”.
Journal of Microfinance, Vol. 4, No.2.
Abstract: CARE's Mata Masu Dubara (MMD) project is a women's time-bound accumulating savings
and credit association (ASCA) program in rural Niger. Over the past decade, CARE has facilitated
the creation of over 5,500 active women's groups with over 162,000, providing the purest forms of
financial intermediation to their members in some of the poorest parts of Niger. Working from a
very simple and appropriately adapted savings based product, sustainability and replication of the
associations is easy to achieve. Due to the overwhelming demand for the product, CARE's role has
evolved from service provider creating the associations to a facilitator that trains local animators
who are then paid by the village women to train them. CARE estimates that there is a minimum of
200,000 practicing members with over $3 million in savings. This article examines the nature of
markets for rural financial services in the Sahel and the characteristics of the MMD model that
respond so well to that market. It also reviews the limitations of the model, and some of the
adaptations that CARE has introduced to successfully replicate the program in numerous other
countries in Africa.
GTZ. (2003). “Rural Finance Program Review”. GTZ
Gurgand, M.; Pederson, G. & Yaron, J. (1996). “Rural Finance Institutions in
Sub-Saharan Africa: Their Outreach and Sustainability”. Savings and
Development 20, no. 2: 133-69.
Abstract: A review is presented of the performance of six rural finance institutions (RFIs) in SubSaharan Africa. Two performance criteria are used to evaluate these RFIs: the level of outreach,
and the degree of self-sustainability achieved. Each of the RFIs exhibits some weaknesses
according to the identified performance criteria and crucial information on their performance is
often missing. However, outreach of all six RFIs has been significant. Generally, the selected RFIs
in Cameroon, Togo, Rwanda, Benin, Malawi and Burkina Faso have extended financial services to
rural clients that are usually excluded from formal financing - smallholder farmers, woman and the
poor. No single model for successful rural financial intermediation emerged from the study. Rather,
these RFIs have employed a variety of operating modes to improve savings mobilization, provide
credit, and increase their flexibility in service delivery. Assessment of sustainability reveals more
varied performance. Loan collection rates are quite different across the institutions and there has
been a build-up of arrears in Cameroon, Togo and Rwanda. While public intervention is often
18
needed during the establishment phase of these RFIs, it should be focused on institution-building
and not lead to subsidized interest rates on loans.
Hartarska, V. (2002). “Three essays on finance for the poor”. OSU Rural Finance
Program.
Abstract: The dissertation contains three essays on unexplored dimensions of finance for the poor:
•
Microfinance governance
•
The efficacy of counseling for low-income mortgage borrowers
•
The limitations of traditional banking in lending to young small firms in transition
economies
The first essay focuses on the microfinance organisation in order to discover what composition of
the board of directors will induce the manager of the microfinance organisation to fully disclose all
the information he possesses, so that the board’s decision to implement or not implement a new
financial technology is based on full information; i.e. it is efficient. An important issue in this model
is how the duality of the organization’s objectives –outreach and sustainability– affects the optimal
composition of the board, under different growth environments and with different characteristics of
board members. The second essay addresses financial technologies and compares the
effectiveness of the traditional screening technology used by banks in granting mortgage loans to
the effectiveness of the screening technology based on credit counseling implemented by a third
party. The goal is to establish whether credit counseling leads to lower rates of mortgage
termination. The challenge of this study comes from the disagreement among researchers on what
conceptual approach (option-based or consumer choice approaches) better captures mortgage
termination behavior. Additionally, there is even less clarity as to what determines the mortgage
termination behavior of low-income households. The essay uses both methods and shows that,
depending on the model, results on the effectiveness of credit counseling vary. The objective of
the third essay is to study how the economic transition and the policies implemented by the
Russian government have affected the security of the entrepreneurs’ property rights and,
consequently, their investment behavior. Moreover, the essay explores the consequences, on the
small firms’ ability to grow, of burdensome regulations on the financial sector and of the lack of
competition from foreign financial institutions, which are better suited to provide cost–efficient
financial services to microentrepreneurs. An important issue in this essay is to identify what types
of firms – younger or more established firms– are most affected by often-faulty government
policies. Conclusions show that innovations in both lending technologies and organisational design
may be more promising mechanisms to expand the frontier of finance to include the poor than
repressive regulation has been.
Hasan, M.E. (2003). “Implications of Financial Innovations for the Poorest of the
Poor in the Rural Area: Experience from Northern Bangladesh”, ESR Review, vol.
5, no.2, winter.
Abstract: Providing microfinance to the poorest of the poor in rural areas remains a challenge.
Grameen demonstrated that the poor are viable clients for loans and reached them on a massive
scale. However, they reach only the upper level of the poor and provide narrow and limited
financial services with rigid systems and procedures, which in many ways do not address the
needs of the poorest. Despite earning signs of success with their SafeSave innovative approach to
serving the poorest in the urban area, this rural adaptation and experiment has faced challenges
because of the different social and economical structures of the rural economy and the different
pattern of poverty dynamics in the rural area. Some of the recent experiments following Safe Save
in the rural areas of northern Bangladesh show that understanding rural poverty, financial
products, and mechanisms; identifying the poorest and their needs; and most importantly,
educating clients and motivating providers and promoters are the keys to success in providing
microfinance to the poorest of the rural poor.
Heidhues, F.; Davis, J.R. & Buchenrieder, G. (1997) "Agricultural Transformation
and Implications for Designing Rural Financial Policies in Romania". CERT
Discussion Paper No. 97/22.
Abstract: In the context of Romania's macroeconomic and agricultural transformation, this paper
analyses the current extent of the depth of rural finance and discusses the implications for the
future development of rural financial markets in Romania. The overall agricultural support system
is reviewed with particular emphasis on mechanisms of rural finance. The paper argues that
building an efficient rural finance system that addresses the financial needs of private sector
agriculture and the rural clientele requires a multi-level approach: Innovations are needed at the
finance system level, involving, in particular, the creation of an effective regulatory and
supervisory framework and making the National Bank of Romania (the central bank) independent
19
of Government interference, at the level of financial organisations, in the processing and
administration of financial services and in product design.
Hine, S. & Thilmany, D. (1998). “Rural Financial Trends: How Are Lenders and
Interest Rates Changing?” Department of Agricultural and Resource Economics,
Fort Collins.
Abstract: In recent history, it looked to many as if rural financial markets would become
dominated by large banks that offered relatively expensive credit to agricultural firms. However,
the 1990's have seen a resurgence in smaller banks with a focus on smaller, agricultural producer
loans. Moreover, small banks may be more competitive than ever with respect to interest rates.
This report outlines some of the important trends in rural credit markets including the types of
lenders, volume of loans, interest rate trends and some discussion of specific types and sizes of
loans. It is our hope that such information will allow agricultural firms and organizations to make
more informed decisions with respect to securing capital, as well as choosing an appropriate
lending institution.
Hock. C. (2002). “Frontier Storms: the Rural Finance Story”. Johanesburgh,
South Africa.
Abstract: This paper tells the story of “Rural Finance”, a developmental micro-lender founded by
the author in South Africa. The aim of this paper is to extract lessons from the experience of “Rural
Finance”, which was ultimately shut down. The paper discusses:
•
The development finance landscape in South Africa;
•
Structure, governance and culture of “Rural Finance”;
•
Products of the company;
•
Equity stakes;
•
The process of shutdown of the company.
The author lists the lessons learned as follows:
•
Governance: Balancing flexibility and formality in the governance structure of a growing
organization is difficult;
•
Over-promotion: The company was over-optimistic about skills development at the
management level, as a result of which some employees were stretched too far;
•
Relationship with key funders: This was not good. Listening more carefully to the funders
would have helped the company avoid the loss of trust that followed;
•
Misjudgment: The relationship between profit and growth was misjudged.
The author concludes by stating that he is applying the lessons learnt at “Rural Finance” to a new
business that will finance social housing on a large scale in South Africa.
Hofmann, A. & Grossmann, H. (2005). “Rural Finance in Conflict Environments”.
GTZ.
Abstract: In recent years much has been published on the subject of microfinance in post-conflict
countries. However, very few experiences have been documented with regard to microfinance
operations in on-going conflicts. This short paper describes how the Small Farmer Cooperatives
Limited (SFCLs) of Nepal have reacted to the conflict in the country. There may be a number of
lessons to be learned for other microfinance organisations in conflicts around the world. The
microfinance sector of Nepal is very rural-focused and quite diversified. The state has a large share
in rural microfinance (Rural Development Banks), while there are a number of private Microfinance
Banks and the cooperative movement. The Maoist rebels have caused severe problems for the
banks, private MFIs and many SFCLs. Only community based Savings and Credit Cooperatives,
informal savings and credit groups and women-managed SFCLs have not been attacked by the
rebels. Thus it is clear that the the rebels are choosing to tolerate MFIs which they perceive to be
not-for-profit, people-owned, non-exploitative and not affiliated with the government. Although
SFCLs are member-owned, they originate from a former government development programme and
thus, many have been attacked. It is interesting that the conflict has had a "cleansing" effect on
the microfinance sector of Nepal. Commercial banks, government MFIs and weak cooperatives
have been driven out or further weakened, while non-government MFIs and SFCLs with active
members, capable leaders and sound practices have been left alone or have recovered quickly
from an attack. If members really feel that the MFI or cooperative is theirs they will stand up to
the conflict parties or re-build their organisation after an attack. This message has led to the GTZimplemented project Rural Finance Nepal (RUFIN) introducing conflict transformation training for
SFCLs. The training has one core message: SFCLs can protect themselves from the conflict and
even help to solve it by ensuring their cooperatives work properly and according to their mandate
(helping the poor), clearing up all internal conflicts, empowering women to take part in decision
making and trying to include disadvantaged groups, such as ethnic minorities and low castes,
20
better. In the future, GTZ-RUFIN will focus on building capacities of SFCLs and their federations
and raising conflict sensitivity amongst their leaders and members. Building capacity for good
financial and operational performance is nothing new to microfinance practitioners. It entails
training and advice on issues such as e.g. loan appraisal, product development, accounting,
internal controls, business planning etc. In the case of SFCLs cooperative-specific capacities are
also needed: members must learn to actively control their leaders through the annual general
assembly; leaders must learn that they are accountable to their members; cooperative managers
must learn how to run their operations like businesses. Business planning training for SFCL
managers will also cover aspects of corporate social responsibility, stressing the importance of
addressing conflict root causes through women empowerment and social inclusion.
Hossain, M. (1991). “Rural Finance in Bangladesh”, National Institute of local
Government, Agargaon, Sher-E- Bangla Nagar, Dhaka, Oct.
Hulme, D. & Mosley, P. (1996). “Finance Against Poverty”. London, England:
Routledge.
Abstract: The theory, advocated since the 1980s by development theorists, that the provision of
small loans to micro-entrepreneurs is an effective policy instrument is examined through the use
of seven case studies. Detailed comparative data are presented from: Bangladesh, Bolivia, India,
Indonesia, Kenya, Malawi, and Sri Lanka. Twelve institutions from these seven countries are
examined, with the studies following a broadly similar format: historical and institutional
background, financial performance over time, direct effects on incomes, employment and
technology, indirect effects on other borrowers and lenders.
Hulme, D. & Mosley, P. (1997). “Finance for the Poor or the Poorest? Financial
Innovation, Poverty, and Vulnerability.” In ed. Who Needs Credit? Poverty and
Finance in Bangladesh., G. D. Wood and I. Sharif, Dhaka, Bangladesh:
University Press Limited.
Abstract: The last decade has witnessed an explosion in both the numbers and the scale of
organisations providing very small loans (micro-credit) to poor people to help them escape
poverty. The Grameen Bank has spearheaded this strategy and by mid-1996 had more than two
million borrowers and was advancing loans of more than US$30 million each month. Its model has
been copied by many non-governmental organisations (NGOs) so that almost 25 per cent of poor
rural households in Bangladesh now have access to institutional credit. Further afield the Grameen
Bank is being 'replicated' in Asia (Malaysia, the Philippines, Indonesia, Nepal, China and Sri
Lanka), in Africa (Kenya, Malawi, Nigeria) and North America (Canada and the USA). In Latin
America the ACCION network has affiliate financial organisations in most countries operating
schemes partly based on Grameen Bank principles. With the UK's Know How Fund currently
exploring the possibility of using micro-credit as a selfemployment strategy in Eastern Europe and
the former Soviet Union, the 'movement' may soon cover the globe. While there is growing
evidence of the ability of micro-credit to reduce poverty a growing number of researchers (see
Rutherford and Wright in this volume; Rogaly 1996; Bundell 1996) and practitioners (ACORD,
Action Aid, Aga Khan Foundation, BURO Tangail, Christian Aid, OXFAM, SANASA and WomanKind)
are arguing that what the poor need is micro-financial services (micro-scale short and long-term
savings, investment loans, consumption loans and, perhaps, insurance). A micro-finance approach
can also aid institutional financial viability (Robinson 1992). This chapter examines the contribution
that micro-credit and micro-finance can make to the alleviation and removal of poverty. It draws
on the materials from a study of 13 financial institutions (see Appendix 1) in 7 countries (Hulme
and Mosley 1996). The first part explores the concept of poverty to identify the criteria that could
be used to assess poverty impacts. Subsequent sections analyse the impacts of micro-finance
initiatives on income poverty, income vulnerability and groups that suffer particularly high levels of
economic and social deprivation. The conclusion argues that micro-credit has proved effective in
poverty reduction but has done little to help the poorest. A shift towards a micro-financial services
approach is needed to permit financial innovations to more effectively meet the varying needs of
the poor and poorest. While micro-finance should be an element of poverty-reduction strategies it
is no panacea. The contemporary micro-finance bandwagon (the inaptly named Consultative Group
to Assist the Poorest and the Micro-credit Forum of 1997 amongst other initiatives) should not
obscure the fact that poverty-reduction requires many other forms of action.
21
Hulme, D. (1999). “Impact Assessment Methodologies for Microfinance: Theory,
Experience and Better Practice”. Manchester: Institute for Development Policy
and Management (IDPM).
Abstract: Microfinance programs and institutions are increasingly important in development
strategies but knowledge about their impacts is partial and contested. This paper reviews the
methodological options for the impact assessment (IA) of microfinance. Following a discussion of
the varying objectives of IA it examines the choice of conceptual frameworks and presents three
paradigms of impact assessment: the scientific method, the humanities tradition and participatory
learning and action (PLA). Key issues and lessons in the practice of microfinance IAs are then
explored and it is argued that the central issue in IA design is how to combine different
methodological approaches so that a 'fit' is achieved between IA objectives, program context and
the constraints of IA costs, human resources and timing. The conclusion argues for a greater focus
on internal impact monitoring by microfinance institutions.
IABD. (1998). “Rural Finance Strategy Profile”.
Abstract: The Rural Finance Strategy will address the main issues that affect the development of
rural financial markets in developing economies and how the Inter-American Development Bank
can best promote and support positive market-based reforms in this area. The Strategy will focus
on how to improve access to three specific financial services: credit, deposits, and insurance. The
primary but not exclusive target group will be small scale agricultural producers and business
operators. In order to do so, several problems must be resolved: (1) imperfect information, (2)
high levels of price and production risk, (3) high transaction costs, (4) inadequate contract
enforcement, (5) the legacy of urban biased economic policies, and (6) weak intermediary
institutional capacity. If appropriate policies, technologies, and partnerships can be adopted to
relieve these problems, rural financial intermediation will become more profitable and a greater
number of rural residents will gain access to financial services. Rural financial markets are a subset
of a country's larger financial system. Both the larger, mostly urban based financial markets and
the smaller, rural ones involve promissory contracts, intertemporal valuations of cash flows, and
trading of claims on assets for cash. What distinguishes the two markets are differences in density
of clients, reliability and cost of gathering information, and the arsenal of risk evaluation and
management techniques. Due to greater spatial dispersion of clients, higher heterogeneity of
production conditions, the marked seasonality of income flows, and a larger number of missing or
incomplete complementary markets in rural areas, rural finance is a more challenging proposition
than urban finance. The Rural Finance Strategy will propose priorities for the Inter-American
Development Bank related to the critical issues identified and the steps that the Bank can and
should take to address the development of deeper, more efficient, and integrated rural financial
markets and institutions. Much of the focus will be on the legal and regulatory preconditions
needed and the institutional actions necessary to strengthen the capacity, improve the
performance, and increase the number of deposit taking financial intermediaries (banks and credit
unions) present and active in rural areas. However, the Strategy will also include consideration of
(1) agricultural risk management techniques; (2) other financial contracts --supplier credit, leasing
and equipment rentals, bonded warehouses, contract farming; (3) deposit services; (4) secured
transactions (the creation, perfection, and execution of security interests); (5) improvements in
the transparency and disclosure of information such as credit bureaus, and (6) innovations in
microcredit technology and products. An underlying premise of the Strategy is that rural
enterprises must be made more profitable and less risky in order to become more bankable.
Without rigorous analysis of elements that contribute to client creditworthiness and enterprise
profitability, it will be difficult to design appropriate remedial action and in turn build marketbased, sustainable rural financial markets. The Rural Finance Strategy is designed as a companion
and complement to the Rural Development, Financial Markets, Microenterprise, Sustainable
Agriculture, and Rural Poverty Reduction
Strategies either previously considered by the Policy Committee of the Board or in process of
preparation and approval.
IABD. (2000). “Seminar: Promising Practices in Rural Finance”.
Abstract: The main purpose of seminar was to share findings of a research project on emerging
best practices in the delivery of rural financial services in six Latin American and Caribbean
countries: Bolivia, Chile, Costa Rica, El Salvador, Jamaica, and Peru. Other purposes included
receiving feedback about the applicability of the research findings and stimulating a dialogue
among operational staff of the IDB and other interested parties on appropriate areas for action and
types of rural finance operations to pursue in the near future. Rural Financial Markets in most Latin
American and Caribbean countries, despite recent financial sector deregulation and previous
attempts to strengthen rural lenders, do not function effectively. The event will highlight the
challenges faced in providing efficient and sustainable rural financial services and present case
22
studies of various organizations and special financial arrangements that demonstrate high
potential for attaining sustainability, serving a broad number of rural clients, and meeting pent-up
demand for new ways to manage risk and liquidity. The seminar:
•
Reviewed the lessons learned in IDB's rural finance projects.
•
Presented a conceptual framework that explains the observed problems of shallowness,
segmentation, and inefficiency.
•
Analyzed the regulatory and legal framework that best facilities rural finance in four
countries.
•
Highlighted several cases of successful rural financial intermediation by commercial banks,
finance companies, credit unions, non-governmental organizations, and new product
development, including savings, leasing of agricultural equipment, rural credit cards, and
the linking of credit, technical assistance, and agricultural marketing services.
•
Built consensus on the appropriate areas for action, types of project interventions, and the
role of the State.
IFAD, (2000). "IFAD Rural Finance Policy". presented to the Executive Board at
the Sixty-Ninth Session, Rome, May 3- 4, 2000.
Abstract: Rural finance is a vital tool in poverty reduction and rural development. Two thirds of the
Fund’s current projects have a rural finance component; about 21% of the Fund’s resources are
dedicated to rural finance.2 Most of IFAD’s target group are small producers engaged in
agricultural and non-agricultural activities in areas of widely varying potential. Direct access to
financial services affects the small producers’ productivity, asset formation, income and food
security. This policy paper is designed to provide an overall framework for the Fund’s work in rural
finance. On that basis, operational guidelines and regional strategies will be prepared in due
course for the use of staff, consultants and partner institutions, with scope both for innovations
and for consolidation of successful existing practices. Rural finance is not a panacea. It is but one
of several important areas for investment in poverty reduction, and its impact is fully felt only
when conducive policies are in place, markets are functioning, and non-financial services are
available. The very poor, i.e. those without income, may be more effectively reached through
direct microenterprise promotion, income transfers, safety nets and improved infrastructure.
Through its rural finance policy, IFAD confirms its commitment to continue its search for better
ways of providing support to the rural finance sector in order to benefit the rural poor. It is
understood that a policy does not cover all fields of intervention and cannot be mechanically
applied. It needs to be adapted to the socio-economic setting of each area and leave room for
financial innovations beyond the scope of this policy paper.
IFAD, (2001). “Rural Finance Strategy, International Fund for Agricultural
Development”.
IFAD, (2003). “Decision Tools in Rural Finance”.
Abstract: Since its inception, IFAD has developed an extensive body of knowledge in rural finance,
with practices at the field level analysed in numerous thematic reports, programme evaluations
and mid-term reviews. It has pulled together this experience and published a manual called:
Decision Tools for Rural Finance. The manual is specifically designed to support programme and
project formulation and monitoring. It is hoped that it will be a useful reference tool for country
portfolio managers, programme and project staff, and consultants seeking advice on technical
operational issues related to rural finance. The manual has three main sections: Section I
highlights the various cross-cutting issues that are common to all IFAD rural finance programmes
and form the basis of understanding rural finance. Section II examines the identification,
formulation and implementation stages in the project cycle and proposes ways and means of
addressing the various challenges that arise from them. Section III focuses on issues and types of
interventions that are specific to each of the regions in which IFAD operates. It also underscores
IFAD’s comparative advantage in implementing programmes in the particular regions. The crosscutting issues that are identified in the Decision Tools include:
•
•
•
•
•
•
•
the unique characteristics of agriculture finance;
the impact of financial sector reform, and potential roles for state-owned banks;
the role of client participation in rural finance programmes;
the importance of savings and remittance services;
identifying and overcoming factors that limit expansion of rural finance programmes into
remote rural areas;
how to balance the provision of loan capital versus funding capacity-building and technical
assistance;
policy issues and conduct of impact analysis.
23
Decision Tools is a ‘living document’, which will be updated and improved as the rural finance field
evolves and as new principles and practices emerge. The manual already has some case studies in
its annexes. The document can be downloaded in full or as a summary.
Iqbal, F. (1981). “Dualism, Technical Change and Rural Finance in Developing
Countries”. A Rand Note prepared for the United States Agency for International
Development (USAID). Washington DC: USAID.
Izumida, Y. & Duong, P. (2001). “Measuring the Progress of Rural Finance in
Vietnam”. Savings and Development 25, no. 2: 139-66.
Abstract: This paper attempts to measure the progress of rural finance in Vietnam by using data
obtained from rural financial institutions as well as from a survey of 100 households each in the
provinces of Ninh Binh, Quang Ngai and An Giang. Conventional theory of rural development
finance tells that rural finance in low income countries generally has many inherent failures such
as low levels of loan recovery, insufficient savings mobilization, high transaction costs, and
distribution bias to relatively wealthier customers. Contrary to the theory, the rural finance in
Vietnam did not encounter the above-mentioned failures so far. The development of rural finance
in Vietnam after the reform could be regarded as a success. Hence, in order to refer the relevance
of the theory of rural development finance, examining factors for the success in Vietnam is of
great worth to draw policy implications for rural finance in low income countries.
Jahangir, A. & Zeller, M. (1995). “Overview paper on rural finance programs for
the poor in Bangladesh: A review of six major programs”, International Food
Policy Research Institute, Washington, DC.
Jansson, T. 2003. “Financing Microfinance: Exploring the Funding Side of
Microfinance Institutions”. Inter-American Development Bank (IADB).
Abstract: As the microfinance industry evolves, an increasing number of specialised formal
microfinance institutions (MFIs) are emerging typically through the transformation of non-profit
foundations. These newly regulated institutions face different opportunities and constraints to their
sources of funds when switching from a funding environment dominated by donors, to a marketbased competitive environment that offers a variety of funding sources. The case studies from
Mexico, Bolivia and Peru are useful to explain the various ways in which these formal sector MFIs
have developed and deal with their funding issues, for example a tendency towards using financing
from other financial institutions is most apparent, especially in the Bolivian and Peruvian cases.
The key issues that are discussed include:
•
•
•
access to capital markets
greater reliance on foreign currency liabilities
the search for additional equity
The paper suggests that donors accept the changing landscape of the microfinance industry and
their changing role within it. Donor agencies might serve the industry better by shifting the focus
away from direct funding and onto removing barriers that currently prevent sustainable
microfinance institutions from accessing funding from the public, from financial institutions, and
from commercial and social investors.
Jazayeri, A. (1996). “Rural Financial Service Associations - the concept”. Small
Enterprise Development, Volume 7, Number 2, June 1996, pp. 4-14(11).
Abstract: Because of their high transaction costs, banks have made limited progress in extending
their services to rural areas in developing countries, and informal savings and loans groups, such
as rotating credit clubs, are limited by the fact that they do not build up their capital between
cycles. This article describes a new model for rural banking: Financial Service Associations (FSAs).
The article describes some of the strengths and shortcomings of other formal and informal
financial arrangements before describing in detail the proposed structure and services of the FSA.
These include taking savings and providing loans to clients, who qualify for membership of the FSA
by being locally based shareholders. Following on from this article, it is hoped that a subsequent
issue of the journal will include a description of the FSA pilot projects taking place in South Africa
and several other African countries.
24
Kannapiran, C. (1995). “Institutional rural finance: lessons from the past and
reforms for the future”. Pacific Economic Bulletin 10, no. 1: 48-54.
Abstract: Failure of institutional rural finance to adequately provide finance to agriculture has
resulted in the exploration of idea of commodity based credit through the existing banking system.
The paper examines the problems experienced by the Rural Development Bank, and its current
status, before presenting some ideas for experimenting with new models. It notes that in such
models careful evaluation would be required, of the financial policy, institutional policies, the
viability of the credit operation, the resource for lending, managerial capacity, the viability of the
rural sector, and the moral ethics and willingness to repay bank loans. Needed changes relate to
institutional and policy reforms, and to banking regulation policy.
Kawai, S. (1996). “The Second Assessment on Rural Financing System in the
Kyrgyz Republic”. Tokyo: Agricultural, Forestry and Fishery Finance Corporation
of Japan.
Kotaiah, P. (1995). “A Review of Rural Finance”. National Bank News Review, 11
(3): 11-14.
Abstract: Examines the operational environment and performance of rural financial institutions
(RFIs). Notes that prudently managed rural financial institutions are supporting non-traditional
activities like floriculture, sericultures, acquaculture, etc undertaken by large farmers. However
RFIs are finding it difficult to meet the needs of the disadvantages sections of the rural community,
as their credit needs are small and frequent which raises transaction costs. Concludes that:
•
The performance of RFIs has been quite impressive in terms of growth in credit
disbursement
•
Banks have opened specialised agricultural branches to exclusively attend to innovative
and hi-tech projects
•
Most RFIs have not been able to reach a breakeven level due to the low volume of
business and the high cost of operations
•
The loan recovery rate of formal credit institutions is very poor
Recommends policy interventions, such as prudential guidelines and interest rates among others,
to remedy the situation.
Kula, O. & Farmer, E. (2004). “Mozambique Rural Financial Services Study”,
Washington, DC: ACDI/VOCA, MicroREPORT prepared for AMAP project funded
by USAID, Washington, DC.
Abstract: A key objective of this research task order is the identification of integrated development
approaches that (1) increase the competitiveness of industries in which small and very small firms
participate, and (2) increase the ability of smallholders to contribute to and benefit from increased
industry efficiency. This industry competitiveness approach – which was determined to be
consistent with the objectives of the Mission’s Strategic Objective (SO) 6, Increasing Rural
Household Incomes – became the basis of the assessment.
Krafft, N.J. (1996). “Agricultural and Rural Finance: Some Thoughts on the Road
Ahead”. Agrekon 35, no. 4: 211-17.
Abstract: The role of government in developing rural financial markets is explored with particular
reference to South Africa. Some general comments on the Strauss Commission report are
presented. The role of credit as a constraint to development is explored and the legal and
regulatory framework for rural financial markets is examined. The proposed new Land Bank for
South Africa is discussed along with successful rural financial schemes and prospects for the
future.
Lamberte, M.B.; Vogel, R.C.; Moyes, R.T. & Fernando, N.A. (2006). “Beyond
Microfinance: Building Inclusive Rural Financial Markets in Central Asia”. ADB.
Abstract: The foreword to this book notes that rural Asia presents a paradox: poverty in Asia
retains a markedly rural dimension but, at the same time, economic opportunities abound
throughout rural areas of Asia. Robust, inclusive financial markets, it argues, can help people take
advantage of economic opportunities, build assets, manage risks, and reduce their vulnerabilities
to external shocks and, in so doing, help people living in rural areas improve their welfare. The
book presents findings from a recent research into the state of rural financial systems in six
Central Asian republics: Azerbaijan, Kazakhstan, Kyrgyz Republic, Mongolia, Tajikistan and
25
Uzbekistan. The book examines and analyzes the current status of rural financial markets in these
countries and attempts to answer a fundamental question: what can be done to develop robust
inclusive rural financial markets? It also highlights the need to go beyond microfinance to develop
inclusive rural financial markets within the context of overall financial sector development.
Lapenu, C. (1998). “Indonesia’s Rural Financial System: The Role of the State
and Private Institutions. Case Studies in Microfinance. Sustainable Banking with
the Poor”. Washington DC: World Bank.
Lee, N. (2006). “Rural Remote Microfinance and Selfish Genes”. Coady
International Institute.
Abstract: The title to this document draws from the writings of Richard Dawkins on what he calls
the selfish gene. The argument he puts forward is that certain genes survive over time through
seemingly conscious adaptive behaviour. Some of the characteristics of selfish genes allow them to
learn and create stable systems over time that survive. This paper argues that parallels can be
drawn with respect to microfinance in rural areas where it is challenging for programs to survive in
costly, unpredictable environments. It is noted here that rural remote communities remain largely
underserved except through informal mechanisms. In providing services financial institutions can
expect high transaction costs, low rates of internal capital mobilisation due to poor physical
infrastructure and a low density population making outreach expensive. The paper argues that
member-owned institutions have the potential to push the “rural frontier” into more remote areas
because they are both self-replicating and adaptive. They are able to build on the best of local and
most strategic of linked arrangements. In these ways, it is suggested, MOIs resemble selfish genes
that are capable of surviving, creating stable systems in unpredictable environments. In order to
survive they need to become part of the financial system. The right mix of local and linked
arrangements includes drawing from local social capital and governance as a strategy for many
MOIs and linkages that may involve different types of second-tiers such as federations, apexes or
clusters with varying levels of inter-governance. Linkages could also be more arms-length where it
is mainly a source for borrowing and depositing surplus capital. Following a discussion on memberowned institutions, remote rural access and the role of self-replication and adaptation, the paper
analyses why the right mix of local and linked arrangements is matters to practitioners, donors
and technical service providers and regulators. The paper concludes with the view that stable selforganising systems survive because they know how to learn.
Llanto, G.M. (2001). “Sustainable Rural Finance: Policy and Design Issues”.
Philippine Institute for Development Studies Policy Notes, 2001(04): 1-8.
Abstract: The paper states that a stable macroeconomic environment characterized by low inflation
expectations is a necessary condition for growth of the financial markets as it encourages the
expansion of formal financial institutions into the countryside, thereby providing stronger
competitive pressure vis-à-vis informal lenders. Furthermore, it is necessary to remove barriers to
entry to the financial markets in order to enhance competition in the financial marketplace. In the
light of these, the paper discusses Philippine's current policy framework for rural finance. It
presents:
•
Some trends in access to rural credit
•
Current rural finance policy framework
•
A critique of past rural credit policies
•
Analyses policy and design issues for sustainable rural finance
Paper concludes that for a number of reasons Philippine's agriculture has failed to sustain its
growth and has remained a stagnant sector.
Mahajan, V. & Ramola, B.G. (1996) “Financial Services for the Rural Poor and
Women in India: Access and Sustainability”, Journal of International
Development 8(2): 211-224.
Abstract: This paper, based on a study commissioned by the World Bank, reviews the performance
of Indian financial institutions in providing services to the rural poor and examines the key issues
facing policy makers and institutions as the country moves forward on financial sector reforms.
The study posits two sets of causal variables for institutional performance: (i) Internal Practices
Attitudes (IPAs); and (ii) mechanisms for client interface that either enhance or thwart access by
the rural poor and women (MEAs). Both of these variables are largely within the control of the
financial institutions. The study sought to identify changes in these variables that could improve
access to financial services by the rural poor. The authors conclude, however that rural financial
institutions are faced with a hierarchy of constraints, largely beyond their control, and any attempt
at developing workable and sustainable approaches to improved access of the rural poor to
26
financial services will need to address a whole range of macro-policy issues including
depoliticization, ownership and governance in addition to regulatory issues.
Mahajan, V. (2000). “A Framework for Building a Sustainable Rural Finance
System (RFS) for India”. BASIX.
Abstract: This paper argues that in order to build a healthy rural financial system (RFS) for the
21st century, policy makers will have to focus on the four components of the RFS - regulation,
intermediation, supply and demand - rather than focusing narrowly on formal sector rural financial
institutions (RFIs), which represent only the supply and intermediation components. The paper
calls for a broadening of the concept of RFS to include credit, savings, insurance and remittance
services, as well as pensions, provident funds, mutual funds, infrastructure and public goods
finance. The paper:
•
Estimates, and looks at the demand for savings, credit and savings services from rural
India;
•
Looks at the supply of RFS from the informal sector, cooperative banks, regional rural
banks, commercial banks and government- owned financial institutions;
•
Examines the problems of rural financial institutions (RFIs), both mainstream and newgeneration.
It advocates a three-track approach for building a sustainable RFS that would involve:
•
Giving incentives to mainstream RFIs to serve the rural sector as a serious business;
•
Encouraging new-generation RFIs with a supportive policy framework and financial
resources and linkages to expand their services;
•
Building a strong demand system in the form of community-based development financial
institutions (CDFIs).
The paper makes detailed suggestions for establishing a RFS and concludes by stressing the
urgency of re-engineering the rural financial system in India.
Maloney, C. & Ahmed, A.B. Sharfuddin (1988). “Rural Savings and Credit in
Bangladesh”. Dhaka, University Press Limited.
Manndorff, H. (2004). "ACCION's Experiences with Rural Finance in Latin
America and Africa”. Accion's Insight Series, No. 11.
Abstract: In the past two years, ACCION has worked with several institutions in Latin America and
Africa to institute or expand rural lending programs. These efforts have resulted in successful rural
penetration as well as a range of microcredit products adapted for rural areas. This InSight briefly
describes the experience of ACCION's affiliates and partners in rural areas and relates lessons
gleaned from that experience on how urban, commercially-oriented microfinance institutions can
enter rural markets.
Martino, L.D.; Japarov, A. & Kasybekov, E. (1997). “Rural Finance in the Kyrgyz
Republic”. Working Paper. Zurich: Swiss Agency for Development and
Cooperation.
Mauri, A. (1985). "The Role of Innovatory Financial Technologies in Promoting
Rural Development in LDCs”. Rivista Internazionale di Scienze Economiche e
Commerciali, Vol. 32, pp. 989-1002.
Abstract: Rural development of LDCs calls for an overall strategy aiming at an economic and social
improvement of peasants. The advancement of this process relies on capital formation and on
efficiency with which capital is used in agriculture. Domestic savings mobilization and resource
allocation play a crucial role at the moment when inflow of foreign capital has dropped.
Conventional views on rural finance of these countries underestimate the savings potential and
concentrate on the need to supply farmers with funds at concessional terms through institutional
channels. An empirical analysis shows, however, that rural areas of LDCs have a positive, and by
no means negligible, saving capacity. Hoarding is a widespread phenomenon in African and Asian
peasant societies. Hoarding is assumed to be a measure of the gap between savings and
productive investments. Where the economy has attained a certain degree of monetization and
cash crops are produced in addition to subsistence crops, a surplus in money may emerge. At this
stage household savings may be mobilized. Efficient rural financial markets would greatly
contribute to achieve the two objectives: savings mobilization and improvement of the quality of
investments. The performance of these markets in LDCs is however poor. The development of
rural financial markets requires specific measures and appropriate action. Financial innovation is
the driving force behind financial development and may be defined as any qualitative change that
27
has a decisive impact on the structure and the performance of the financial sector. A whole range
of financial innovations, some of which may even seem banal, is required on both sides of the
activity of financial intermediaries: the deposit taking and the lending functions. Institutional
innovations as well as new financial technologies are recommended.
Mauri, A. (1986). “Financial Innovation and Rural Development” Ahorro, No.
198.
Abstract: Financial intermediation is a diffused process that involves a large number of actors at
different levels. Each of them in any economic environment has the opportunity to meet the
challenge of innovation. In most developing countries agriculture remains a principal source of
income for the majority of population, but in most of rural areas of these countries financial
intermediation has a poor performance and is unable to promote development. Financial
innovation, therefore, may be the way to break the vicious circle of poverty and can play a crucial
role in socio-economic change in the peasant society. The paper considers some of the
fundamental issues concerning financial intermediation and financial innovation in rural areas of
LDCs. It consists of two main parts. The first part provides a critical overview of rural financial
markets in LDCs and discusses the most relevant weaknesses of these markets, due mainly to
their fragmented nature and to distortions brought in by government concessionary credit policies.
Furthermore cheap-credit policies for agriculture have hampered in many instances the
development of viable institutions in the formal financial sector. The second part of the paper
concentrates on proposals directed to redress this state of affairs. It explores and evaluate suitable
financial innovations, both institutional and operational, to be implemented in this context. Crucial
reforms are needed to build more complete rural financial institutions devoted both to deposit
taking and lending or, if it is the case, to transform existing single-function institutions to multifunction institutions. More appropriate financial techniques should be designed and implemented to
cater for the specific needs of a rural environment.
Mattesini, F. (2003). "Financial Intermediation as a Source of Aggregate
Instability". CEIS Tor Vergata - Research Paper Series No. 35.
Abstract:
We consider a simple overlapping generations economy where the behavior of
intermediaries, in a market characterized by asymmetric information and moral hazard, may give
rise to cyclical equilibria. When capital increases output and savings also increase and therefore
more capital will be available in the following period. At the same time, however, the higher supply
of of savings leads to a decrease in the deposit interest rate and this will induce intermediaries to
decrease the number of firms that are monitored. A larger number of firms will select low quality
projects and, because of this, less capital will be produced in the following period. For some
parameter values this second effect may prevail over the first one and the stock of capital in
period t+1 may actually be lower than the stock of capital in period t. The model provides a
rigorous interpretation of the view associated with Hyman Minsky [18], Charles Kindleberger [16],
and Henry Kaufman [15], according to which expansions come to an inevitable end because of
excessive or ill-considered lending that took place during the boom.
Mellor, J.W. (1995). “Some Issues in Institutional Finance for Agricultural
Development: A Cross-National Review of Evidence”. The Pakistan Development
Review 34, no. 4: 509-42.
Abstract: The development of appropriate rural financial institutions in Pakistan can greatly
facilitate the process of economic development. Such institutions, if developed along the lines
outlined above, would enable the mobilization of savings deposits, thus providing banks with the
necessary resources to undertake rural lending. This would also enable transactions costs to be
reduced by spreading overheads. Increased competition will lead to better administration and
hence reduced overheads and improved repayments on loans. The greater access by the small
farmers would allow for high volume and high branch density. The easing of the credit constraints
on small farmers will have positive effect on efficiency, employment, and equity. A well-functioning
rural financial sector will also reach out to the private sector operating in the distribution of inputs
and the processing and marketing of outputs. The increased volume of activity will result in
reducing the overheads of the rural financial institutions while increasing the level of economic
activity in the rural sector both directly and indirectly through the linkage effects.
Meyer, R.L. & Alicbusan, A.P. (1984). “Farm-Household Heterogeneity and Rural
Financial Markets: Insights from Thailand”. In Undermining Rural Development
with Cheap Credit, edited by Dale W. Adams, Douglas H. Graham, and J.D. Von
Pischke. Boulder: Westview Press. p. 22-35.
28
Meyer, R.L. & Cuevas, C.E. (1992). “Reduction in Transaction Costs of Financial
Intermediation: Theory and Innovations”. In Savings and Credit for
Development. Report of the International Conference on Savings and Credit for
Development, Denmark. 28-31 May, 1990. New York: United Nations. p. 285317.
Meyer, R.L. (1999). “Rural Financial Markets and Rural Non-Farm Enterprise
Development”. In Strategies for Stimulating Growth of the Rural Non-Farm
Economy, edited by Steven Haggblade, Peter Hazell, and Thomas Reardon.
Washington DC: International Food Policy Research Institute.
Meyer, R.L. & Nagarajan, G. (2000). “Rural Financial Markets in Asia: Policies,
Paradigms, and Performance”. New York: Oxford University Press.
Abstract: A vast majority of the population in rural Asia are micro-entrepreneurs: farmers,
shopkeepers, food processors, traders, and small-scale manufacturers. Despite significant income
growth in the last 30 years, many of them remain poor; about 670 million rural Asians still live in
poverty and continue to rely, directly or indirectly, on agriculture for their livelihoods. Like other
entrepreneurs, rural Asians, including farmers, require access to dependable and well-designed
financial services in order to better manage and expand their businesses. Without this access,
many poor entrepreneurs are simply unable to take advantage of new market opportunities that
public investments and/or market reforms provide. But conditions conducive to the rapid
development of modern financial institutions are generally lacking in rural areas. Farmers are
dispersed over wide areas and information on creditworthiness or project-specific risks is costly to
collect, making general risk assessment expensive. Poor households lack collateral-suitable assets,
transactions are small and expensive to administer, and business risks, especially in agriculture,
are highly covariant. Matters are further complicated in transition countries such as those in
central Asia where private ownership of capital and market-based production and exchange were
introduced only in the 1990s. No wonder, then, that private sector banks have not bothered to set
up shop in rural areas, and in cases where they have been arm-twisted by governments to do so,
they have done so at considerable financial loss. Given this situation, how should policy makers go
about contemplating rural financial policies in the 21st century in Asia? This is the fundamental
question that Meyer and Nagarajan attempt to answer. They do so by considering other important
questions: How do agricultural markets interact with financial markets? What have recent country
experiences been like, and what can we learn from them? How have policy paradigms emerged,
played out, and changed? How have institutions responded, and what lessons do they provide for
the future? While there has been no dearth of writings on the topic of rural finance in the last 20
years or so, this book is clearly unique in attempting an all-Asia generalisation. The book itself is
the third in a five-volume A Study of Rural Asia series commissioned by the Asian Development
Bank, and draws largely on materials gathered from six country studies conducted specifically for
the purpose. Its 12 chapters are divided into two main parts. The five chapters in Part A lay out
study objectives, a conceptual framework, and the principal findings from an analytical synthesis
of the six country studies, concluding with the chapter Developing Rural Financial Markets Asia:
What Should be Done?”. Readers interested in obtaining an overall assessment, but who prefer not
to get into country-level details, can easily stop reading here: the main arguments have been
presented, useful evidence has been summarised, and final conclusions have been drawn. Part B
of the book, rather like an annex, presents the country case studies themselves. These studies are
rich in detail and will be useful to many readers, especially those seeking information on the
selected countries. The countries chosen are: Bangladesh and India in South Asia (“poor, densely
populated” countries where “the state has intervened heavily in the their financial sectors”);
Kyrgyz Republic and China (Central Asian countries ‘in transition’), and Indonesia and Thailand
(rapid growth economies recently hit by a financial and economic crisis, but “known worldwide for
having developed rural financial institutions that today serve millions of clients with a minimum of
subsidies”). Three ‘flagship’ organizations are singled out as worthy to learn from: Bank for
Agriculture and Agricultural Cooperatives (Thailand), Bank Rayat Indonesia (Indonesia), and
Grameen Bank (Bangladesh). The book, however, does not address clients’ perspectives
anywhere. The authors suggest that, historically, policy intervention in the Asian rural financial
sector was rooted in agricultural finance, responding to the general assessment in the 1960s and
the 1970s that credit frequently subsidised credit was necessary to enable small farmers to adopt
risky new crop technologies and also to push them over to commercial (as opposed to subsistence)
agriculture. Most now agree that this type of ‘directed’ and ‘subsidised’ credit administered through
government owned-commercial banks failed miserably, and the authors provide an interesting
discussion on whether or not these institutions should now be closed or rehabilitated. However,
richer lessons might have been drawn had the authors been able to disentangle the confounding
29
effects of targeting, subsidisation, perverse incentives within government bureaucracies, and the
on-the-ground realities of poor small farmers. Rural finance enthusiasts will have no problem
embracing, as the authors do, a zero-tolerance position on poor repayment performance,
administrative laxity, substandard or opaque accounting practices, and the iniquitous political
capture of programs and institutions. But an indiscriminate lumping of these issues with those
related to targeting and/or the use of public resources is another matter. Directing financial
services to small farmers when market failures are known to abound is not itself an intrinsically
bad idea. Throwing this otherwise healthy baby of an idea away with the dirty bath waters of
organisational weakness and political corruption has the effect of undermining some of the
important conclusions reached in the book. The authors would have done better had they instead
investigated and highlighted the main threads linking these problems. The subsidy issue is also
somewhat summarily tossed out, leaving the reader with the impression that it naturally and
invariably contributes to a lack of discipline on the part of both providers and borrowers. Many will
find this assessment not all that helpful in dealing with an industry that would literally vanish if not
for public funding. For the authors, though, this is key advice, one that leads to the fundamental
conclusion of the book: sustainable rural financial systems have to be market-based, and market
reform and strengthening rather than any kind of social engineering is the best way forward.
Hammering and re-hammering this central message is what the book does best. At the core of the
authors’ recommendation is a three-pronged strategy for building rural financial markets: (1)
creation of a conducive policy environment (ensure sound macroeconomic management and unrepress the financial sector), (2) build financial infrastructure (build and implement legal,
regulatory and information systems that make financial transactions less risky for both providers
and users), and (3) nurture financial institutions that combine good client outreach with financially
sustainable services. All this is genuinely sound advice: competitive and market-based financial
institutions are highly unlikely to emerge under any other policy regime. But what is the timeline
of such development and what are its practical implications? Why have non-profit institutions
taken a more immediate and, by all standards, a totally overwhelming role? What makes them do
what they do? Is there a case, in the intermediate stage, to balance market-reform and marketstrengthening policies with institutional initiatives that skirt around stubborn market failures? If
yes, how? If not, why not? What lessons do the generally buoyant informal financial markets in
rural Asia offer in all this? Readers, particularly those working with institutions like the Asian
Development Bank, would have benefited significantly more had the book delved deeper into such
issues. The book is nonetheless an essential read for those interested in the current state of the
Asian rural financial sector, doubly so if you happen to be interested in what is going on in
Bangladesh, China, India, Indonesia, the Kyrgyz Republic, or Thailand. Abstract by: Manohar
Sharma
Meyer, R.L. (2002). “Performance of Rural Financial Markets: Comparative
Observations from Asia, Latin America and the US”. Brazil: Brazilian Agricultural
Economics Association.
Abstract: After three decades of rural financial market failure in Latin America and Asia, a renewed
interest has developed. Discussion of the formation of new specialized agricultural banks neglects
to consider the successes and failures of past initiatives in this area. This paper explores the
existing challenges for creating sound rural finance markets to serve farmers and the rural
community not serviced by microfinance. In the past, agricultural economists have focused on
farmer access to financial services; terms, conditions, and institutional operation. Other research
has shown how sound macrofinance policies, supportive institutions, and investments in
institutional building can lower the costs and risks of rural financial intermediation. Improvements
in laws, regulations, institutions, and policies in financial intermediation in Latin America must be
made before rural communities will have access to self-sustainable financial services. Until these
changes are made, Latin American farmers will remain at a proportional disadvantage in financial
services.
Meyer, R.L. (2002). "Track Record of Financial Institutions in Assisting the Poor
in Asia", Research Working Papers Series No. 49, Asian Development Bank
Institute, Tokyo Japan.
Abstract: The impact of microfinance programs on the poor is difficult to assess, although a
number of studies have tried. This paper usefully summarizes the performance of the industry and
identifies a number of empirical pitfalls and methodological problems. While outreach is
surprisingly impressive, financial sustainability remains a major problem in many countries. Most
importantly, positive benefits vary by gender, type of program and country, and some households
may be so poor and lacking basic skills that it could even be a mistake to encourage them to
borrow.
30
Meyer R.L. & Buchenau, J. (2003). “Individual Lending in Rural Finance: The IPC
Model.” Paper presented at the Microfinance Regulatory Council of South Africa
seminar, “Current Issues in Microfinance,” Johannesburg, South Africa.
Moll, H.A.J. et al. (2000). “Exploring Ssgmentation in Rural Financial Markets: An
Application in El Salvador”. Savings and Development, Issue no. 1, 2000.
Abstract: Understanding the segmentation in rural financial markets is of major importance for the
identification of feasible relationships between clients and financial institutions. In this article we
combine different insights into segmentation in rural financial markets into a two-dimensional
analysis, with the supply of credit by types of lenders and the demand for credit by types of
borrowers as the dimensions. Within the grid formed by these two dimensions the existing credit
relationships indicate occurrence and measure of segmentation. We apply this method of analysis
to analyse the rural financial market in two provinces in southern El Salvador. The supply side is
analysed by examining the stipulations of the credit contracts offered by different types of
suppliers, and the demand side by examining the characteristics of different types of farm
households in relation to their credit relationships. The a priori classification of lenders and
borrowers is tested and found valid; the qualitative and quantitative insight into segmentation
obtained from the resulting two-dimensional perspective on the rural financial market may be used
by financial institutions to expand their services and reach new clients.
Moll,
H.A.J.
(2005).
"Microfiannce
Microfinance, Vol. 7, No. 2.
and
Rural
Develoment”.
Journal
of
Abstract: The long-term perspective on microfinance starts with a discussion of three central
issues: first, views and policies, with two opposing views: “credit for target group” and “pushing
the financial frontier”; second, the performance of microfinance institutions measured via two
objectives: outreach and financial sustainability; third, microfinance and rural development. This
latter issue is approached through analyses of the effects of financial services on rural households
and analyses of long term national financial development. Both micro and macro studies show
positive effects of an expansion of savings and lending services, financial deepening. The negative
side of financial deepening, the apparently unavoidable occurrence of bank insolvencies, is also
reviewed. The concluding section argues that the microfinance sector should be guided by
“stability and expansion”: stability to withstand shocks and to maintain the relationships
established between rural households and microfinance institutions, and expansion to include more
people within the financial frontier.
Nabi, I.; Faruqee, R.R. & Qureshi, S. (1996). “Rural Finance for Growth and
Poverty Alleviation in Pakistan”. World Bank.
Abstract: This paper highlights the importance of the rural sector in Pakistan's economy and
argues that a healthy and well-functioning rural finance system can help in achieving two policy
objectives:
•
Accelerating agricultural growth;
•
Reducing poverty.
The paper studies the rural finance sector of Pakistan in detail and presents its performance and
structure. The three areas, which drive the demand for credit in the country, are:
•
Agricultural investment,
•
Consumption smoothing by households,
•
Non-farm investments.
The paper lists the problems associated with rural finance in Pakistan:
•
Existing institutions delivering formal credit are facing a serious financial crisis and cannot
be sustained;
•
Present rural finance system does not cover adequately the smallholders, who will be very
important for future growth;
•
Increase in the growth rate of agriculture will further increase the demand for credit.
In order to generate credit for the growing demand, it is important to look at sources of credit. The
paper identifies some of these sources and details their performance and problems:
•
The Agricultural Development Bank of Pakistan (ADBP),
•
Commercial bank,
•
The cooperative sector,
•
The informal sector.
The paper concludes by providing some policy recommendations:
•
Creating a prudent regulation and legal framework,
•
Encouraging a competitive environment,
31
•
Making credit available to target groups such as for smallholders, for non-farm activity and
for women.
Nagarajan, B.S.; Narayanasamy, N. & Ramachandran, S. (1996). “A Financial
Appraisal of Rural Financial Institutions in Tamil Nadu”. Journal of Financial
Management and Analysis 3(1): 1-7.
Nagarajan, G. (2003). “Going Postal to Deliver
Microclients”. Finance for the Poor, Vol.4, No.1. ADB.
Financial
Services
to
Abstract: This article, directed toward microfinance theorists, discusses the role of post-office
savings banks (POSBs), which function as microfinance institutions in many developing countries,
particularly Asian countries, which form the basis for this short study. POSBs have many attractive
aspects: they are accessible even in remote areas, they accept even tiny deposits, and have
longer hours than most microfinance institutions (MFIs). Moreover, they generally have a good
relationship within their neighbourhoods (everyone knows their mailman or mailwoman), their
deposits are protected by the government and can even provide tax benefits. Despite these and
other benefits, major issues restrict the use of POSBs as a viable alternative to expand
microfinancial services to the unbankable. First, as POSBs are generally owned by governments,
bad governance means a poorly-functioning POSB, and political issues may affect the POSB more
than other MFIs. Second, POSBs are generally passive receivers of deposits, and do not offer a
wide range of financial services, and are often heavily subsidised by governments, both of which
tend to de-emphasise the goal of POSB self-sufficiency and viability as a microfinance institution.
The author discusses ways of helping POSBs to provide an expanded series of effective services.
One suggestion is to create an autonomous board of directors from the private sector, so the POSB
is able to act independently of government financial policy. Financial services and products need to
be diversified; the author suggests that POSBs join forces with other local MFIs to offer more
services cost-effectively. Staff need to be better trained in financial services rather than just as
postal workers. In the end, the article poses some questions that should be asked before
development of POSBs should begin, all concerned with viability and the need for expanded
services in the regions under consideration. This article comes complete with fact boxes comparing
the experience of POSBs in different Asian countries, and though sketchy, it is both interesting and
thought-provoking.
Nagarajan, G. & Meyer, R.L. (2005). “Rural Finance: Recent Advances and
Emerging Lessons, Debates, and Opportunities.” Reformatted version of Working
Paper No. (AEDE-WP-0041-05), Department of Agricultural, Environmental, and
Development Economics, The Ohio State University (Columbus, Ohio, USA).
Abstract: Rural finance remains very challenging and in developing countries it is generally weak,
despite the efforts of donors, governments and private investors to improve it. However, important
lessons are emerging from these experiences that provide useful guidelines on how to expand and
make more effective the provision of rural financial services. This report examines these lessons
about rural finance. It identifies the recent advances, current debates, major gaps, challenges and
opportunities that confront efforts to expand and strengthen it. This review, conducted between
June and November 2004, was commissioned by the Ford Foundation’s Affinity Group on
Development Finance (AGDF)’s Rural Finance Committee. It is based on the latest literature
available and on discussions with various donors, practitioners and researchers active in this field.
Throughout this review, the term ‘rural finance’ refers to the provision of financial services to a
heterogeneous rural farm and non-farm population at all income levels. It includes a variety of
formal, informal and semiformal institutional arrangements and diverse types of products and
services including loans, deposits, insurance and remittances. Rural finance includes both
agricultural finance and rural microfinance, and is a sub-sector of the larger financial sector. We
utilize a conceptual framework based on the new rural financial paradigm that considers rural
populations as bankable through effective institutions. The desired goals for rural financial
institutions include maximizing outreach and achieving sustainability in order to make the greatest
possible impact on the lives of rural people. These goals are achieved through advances made in
different types of institutions, products, services, and processes in response to the information,
incentives, and contract enforcement barriers that hinder financial transactions in rural areas.
These advances are nurtured by a good enabling environment, consisting of sound policies and
supportive institutions.
32
Nagarajan, G. & Meyer, R.L. (2006). “Rural Finance Today: Advances and
Challenges”. Finance for the Poor, Volume 7 Number 4. ADB.
Abstract: Rural finance is referred to here as the provision of financial services through formal,
semiformal and informal institutions to rural farm and nonfarm population at all income levels. The
authors of this paper state that in the past, many rural finance programs failed due to a
combination of lack of attention to institution building, faulty design and implementation, and bad
macro policies driven by political interests. It is noted that currently, however, promising
developments may potentially push the rural finance frontier forward. The major breakthrough for
current forms of rural development stem from the new rural finance paradigm of the late 1980s,
which is premised on the fact that rural people are bankable, and rural clientele are not limited
only to farmers and they demand varied type of financial services for which they are willing to pay.
This paper highlights several advances that are being made in today’s rural finance sector, and
identifies a number of remaining challenges. The paper is divided into four key sections. The first
section covers advances in institutions, which begins by highlighting that government agricultural
development banks still dominate in several countries and some have been successfully reformed.
It also discusses the fact that several microfinance institutions are increasing their rural operations
and are becoming important suppliers or rural financial services, and that member-based informal
institutions such as SHGs and SACCOs are increasing and have the potential to play an important
role, especially in remote rural areas. The second key section highlights advances in products and
services. It begins with flexible savings products that are being developed to service rural areas. It
also discusses how rural leasing, under certain conditions, provides a viable financial option for
rural clients. Index-based insurance, the importance of remittance services to rural areas and the
emergence of products that comply with Islamic laws are also covered. Advances in processes are
the topics of the third key section. The four main areas discussed here are: how a better
understanding of financing through value chains is developing; how partnerships between
commercial banks and informal systems are expanding rural outreach to new clients; how strategic
alliances among various types of institutions are growing as a way to offer new financial products
in rural areas; and, how the use of electronic technology is revolutionising the provision of rural
financial services, especially in countries where the IT sector is less regulated than the financial
sector. Finally, before concluding, the paper lays out three key challenges – the possible
reintroduction of interest rate ceilings; reducing the costs and risks of e-banking in rural areas;
and, developing an enabling policy environment.
Nair, A.; Kloeppinger-Todd, R. & Mulder A. (2004). “Leasing - An Underutilized
Tool in Rural Finance”. World Bank - Agriculture and Rural Development
Department (ARD).
Abstract: The objective of this paper is to examine the potential of leasing as a rural finance tool.
The paper analyzes the utility of leasing for rural enterprises as a means to acquire equipment and
reviews the experience of a cross-section of entities providing leasing in rural areas. Additionally,
the paper provides an overview of leasing (types, advantages, risks, and enabling environment)
and reviews World Bank and International Finance Corporation (IFC) experience in supporting
development of the leasing sector. The paper concludes by providing recommendations for
enhancing World Bank support to expand access to leasing in rural areas. The paper makes four
recommendations for World Bank involvement in enhancing access to leasing in rural areas of
developing countries: First, the World Bank should increase the availability of information on the
demand and supply of leasing (by banks and other institutions) in rural areas. Analytical work on
rural finance should incorporate assessments of access to leasing. Second, the World Bank should
incorporate operational support (technical and financial assistance) for leasing into rural finance
projects and other projects that have rural finance components. Credit lines for rural finance
should not discriminate between lenders and lessors, and projects with policy reform components
should include reforms specific to leasing. Third, the World Bank should also consider creating, in
cooperation with IFC, regional leasing development facilities to provide technical assistance for
both policy reforms and leasing providers. Fourth, developing collaborative arrangements with
other development agencies (such as the USAID and DFID) and development investors (such as
the Netherlands Development Finance Company (FMO) and the German Development and
Investment Company (DEG)) that have significant experience in supporting leasing development
could also be beneficial. This could be done within existing and new projects.
Onumah, G. (2003). “Improving Access to Rural Finance through Regulated
Warehouse Receipt Systems in Africa.” Paper presented at the US Agency for
International Development–World Council of Credit Unions conference, “Paving
the Way Forward for Rural Finance: An International Conference on Best
Practices,” Washington, DC.
33
Abstract: Promoting efficient, sustainable and widely accessible rural financial systems remains a
major development challenge in most African countries. With about 73% of Africa’s population
living in rural areas, and the high incidence of rural poverty, improved rural finance is seen as
crucial in achieving pro-poor growth and poverty reduction goals. However, the development of
rural financial systems is hampered by the high cost of delivering financial services to small, widely
dispersed customers; as well as a difficult financial terrain – characterised by high and covariant
risks, missing markets for risk management instruments and lack of suitable collateral. Attempts
to reduce the gap in the provision of rural finance often focus on supply-side interventions,
including government and donor-funded targeted credit programmes of the 1950-60s, the global
failure of which is well cited (Yaron et al. 1997). Contrary to the expectations of its advocates,
liberalisation of financial markets in the 1980s has not succeeded in improving the supply of
finance to rural households and enterprises, as formal financial institutions (FFIs) have become
more risk averse and reduced their exposure to agriculture and the rural economyii. During the
1990s, a number of NGOs converted into full-service micro-finance institutions (MFIs) targeting
rural and microentrepreneurs. However, scepticism is growing about their role in mobilising rural
savings and in providing agricultural finance (Murdoch, 2000). This paper takes the view that
sufficient attention has not been given to interventions that improve access to rural finance
through reducing risks in the rural financial environment. It is argued in the paper that rural
borrowers are not attractive to FFIs because they are perceived as high risk borrowers (with
“wrinkled” faces). It is stressed that their chances of accessing finance can be improved with
interventions that give them a “facelift” by providing them with opportunities to manage and
reduce the risks to which they are exposed. Using the case of a warehouse receipt (WR) system
being developed in Zambia, the paper demonstrates how market institutions can be used to give
rural borrowers a “face-lift”, and to further show that setting up institutions that facilitate market
delivery of rural financial services is not a short-term fix but a long-haul process. The paper is
structured as follows: Section 2 looks at how low and unstable rural income as well high risks limit
access to financial services in the rural economy. In Section 3 we illustrate how a warehouse
receipt (WR) system can help turn this situation around. In Section 4, various WR models are
reviewed and the model being established in Zambia described, including the implementation
challenges faced. The summary and conclusions are set out in Section 5.
Pagura, M. (2004). “Mapping Rural Finance Products, Delivery Models and
Linkages”. SEEP (Small Enterprise Education and Promotion) Network.
Abstract: Within the context of demand and supply situation of rural financial services, this
presentation presents an overview of innovations being tried to improve delivery:
•
Using multi-partner delivery models, where apex agencies finance a mix of intermediate
institutions such as village banks and credit unions;
•
Utilizing the agri-business value chain for delivering financial products;
•
Making innovative partnerships and linkages.
The presentation also dipicts a framework for developing strategies for delivering financial services
(ACT principle):
•
Analyzing and understanding the key constraints and challenges of provisioning rural
finance;
•
Comprehending the different products and delivery models available;
•
Taking the best mix of products and delivery models to effectively deal with the constraints
in the area of intervention.
Pagura, M. (2006). “Expanding the Frontier of Rural Finance Through Linkages”.
FAO.
Abstract: This presentation advocates the use of linkages to expand the frontiers of rural finance.
It:
•
Identifies the need for access to financial services for poor people, among both the urban
and rural population, in various countries of the world;
•
Lists the challenges in rural finance in terms of constraints on vulnerability, operations,
capacity, policy and regulation;
•
Describes how linkages can help overcome the key challenges in rural finance.
The presentation then details a study on linkages and presents its background, rationale and areas
of research. It presents the following findings of the study:
•
Much interaction between formal and informal sector primarily through direct-financiallinkages;
•
Emerging private banks and insurers using linkages to go “down market”.
The presentation ends by listing the following conclusions of the study of linkages in Asia:
•
There is strong evidence that financial linkages expand the access to finance in remote
areas;
•
A critical need is to build the capacity of less formal partners;
34
•
•
•
•
•
Lack of systems impedes efficiency and evolution;
“Client capture” is a real concern of less formal partners;
Right financial sector policies can help jump start linkages;
There is a growing impact of linkages as financial systems develop;
Effectively preparing actors at micro, meso and macro levels increases speed of
development.
Park, A.; Brandt, L. & Giles. J. (1997). “Giving Credit Where Credit is Due: The
Changing Role of Rural Financial Institutions in China”. Working Paper.
Department of Economics. Ann Arbor: University of Michigan.
Park, A. (1998). “Rural Financial Market Development in China: A Report to the
World Bank”. Working Paper. Department of Economics. Ann Arbor: University of
Michigan.
Parikh, T. (2005). “Rural Microfinance Service Delivery: Gaps, Inefficiencies and
Emerging Solutions”.
Abstract: Microfinance, the provision of financial services to poor and under-served communities,
has emerged as one of the most promising avenues for stimulating rural economic development
through local enterprise. In this paper we will discuss some of the major technology gaps faced by
rural microfinance institutions, focusing on areas that are most important for the future growth of
the industry. This work builds upon six months of field research, including field studies with eight
different microfinance organizations located across Latin America and Asia, and discussions with
many other organizations worldwide. Historically it has proved difficult to provide sustainable
micro-financial services to remote rural clients. As formal financial institutions begin to look
seriously at this market, the microfinance industry faces significant challenges in maturing and
scaling to sustainability. We will look at three of the major tasks faced by rural microfinance
service providers today - 1) the exchange of information with remote clients, 2) management and
processing of data at the institutional level and 3) the collection and delivery of money to remote
rural areas. Each of these has proved to be a difficult problem to solve for microfinance institutions
worldwide, and may offer opportunities for information technology-based solutions. For each of
these "gaps" we will look at current best practices, examine the role information technology has
(or has not) played in overcoming these obstacles, and discuss promising future directions. In this
context, we will discuss the use of hand-held technologies for rural information collection,
experiences in the implementation of MIS systems at the institutional level and current strategies
for introducing electronic banking to remote rural areas. We will look at the results thus far in each
of these directions and the potential ramifications for the long-term growth and sustainability of
the sector. We will continue by presenting some of our current work in this area. This includes the
design of accessible paper interfaces for reaching uneducated rural clients; and the Mahakalasm
MIS – an open source toolkit for information processing and management by SHG Federations.
These projects are joint work with the Covenant Centre for Development and ekgaon technologies
in Madurai, India. We will conclude by discussing some interesting and powerful new trends in
microfinance, and postulate some potential models for the future development of the industry.
Pearce, D.H. (2003). “Financial Services for the Rural Poor.” CGAP Donor Brief,
no. 15, Washington, D.C.: CGAP.
Abstract: The majority of the world’s poor live in rural areas.Yet most lack access to the range of
financial services they need. Financial services available to them are relatively costly or rigid,
whether from formal or informal financial providers or traders and agricultural processors offering
input credit. Financial institutions seeking to work in rural areas face numerous constraints, such
as poor infrastructure and low education level. Moreover, the main products of many microfinance
institutions—short-term working capital loans with frequent expected repayments—are not wellsuited to seasonal or longer-term agricultural activities. The recent introduction by some donors of
the financial systems approach in micro and rural finance—which emphasizes favorable policy
environment and institution-building—has improved the overall effectiveness of rural finance
interventions. But numerous challenges remain, especially in agricultural finance.
35
Pearce, D.H.; Goodland, A. & Mulder, A. (2004). “Membership-Based Financial
Organizations.” In the “Rural Finance for Agriculture” module of the Agriculture
Investment Sourcebook 2004. Washington, DC: World Bank.
Abstract: Support to membership-based financial organizations, including relatively formal credit
unions, savings and credit cooperatives, and less formal community-based savings and loan
associations, has had mixed results. In some cases, sustainable institutions have resulted,
successfully reducing transaction costs and collateral constraints. In others, donor support has
created dependence and failed to address problems of weak governance, poor internal control, and
capture by elites. This investment note describes lessons learned and good practice in supporting
membership-based organizations that provide rural financial services for agriculture. Support to
such organizations is recommended where rural financial markets are underdeveloped but social,
geographic, and economic conditions nevertheless create a comparative advantage for this lowcost approach.
Pearce, D.; Goodland, A. & Mulder, A. (2004). “Investments in Rural Finance for
Agriculture: Overview.” In the “Rural Finance for Agriculture” module of the
Agriculture Investment Sourcebook. Washington, DC: World Bank.
Abstract: Providing financial services to households and agribusiness in poorer and marginal rural
areas remains a challenge for the World Bank and other funding agencies. The adoption of a
financial systems approach and the expansion of the microfinance sector have led to significant
breakthroughs in performance, outreach, and lending volumes. Such breakthroughs rarely have
extended to more marginal rural areas dependent on agriculture, however. Even so, some
progress has been made recently in providing financial services to poor rural households with
diversified nonfarm sources of income or income from nonseasonal agricultural activities. Several
factors heighten the costs and risks of financing agriculture and cause financial service providers to
regard investment in agriculture as unattractive (box 8.1). However, recent efforts by the World
Bank and other organizations are starting to bear fruit in the form of emerging models and
successful approaches. Rather than recapitulating the comprehensive and well-documented
treatments of the challenges and failures of agricultural finance (World Bank 2003; IADB 2001;
Yaron, Benjamin, and Piprek 1997), this module explores promising new directions in rural finance
for agriculture and identifies lessons for policy and lending.
Pearce, D.; Goodland, A. & Mulder, A. (2004). “Agriculture Investment Note:
Microfinance Institutions Moving into Rural Finance for Agriculture”. Agriculture
Investment SourcebookWorld Bank.
Abstract: This Agriculture Investment Note produced by the World Bank details how a few
innovative microfinance institutions (MFIs) have been successful in providing financial services to
poor rural households dependent on agriculture. They have adopted several techniques including:
•
Tailoring procedures and products to agricultural seasonal needs;
•
Applying risk management techniques;
•
Adopting new technologies.
The note describes the benefits of increased MFI activity in rural areas and in financing agriculture:
•
Increased competition, higher volumes of finance, and a wider range of financial services
are becoming available to farmers and their households;
•
MFIs can offer credit, not just for agriculture, but also for non-farm, household, and
emergency needs, as well as savings and transfer payment services;
•
There are now more favorable and transparent terms of access for the poor;
•
Good practice MFIs can also bring a commitment to efficiency, transparency in reporting,
high portfolio quality and sustainability.
The note concludes by setting out the principle lessons learnt in supporting MFIs that move into
agricultural finance and by providing recommendations for practitioners involved:
Lessons learned:
•
Flexible disbursement and repayment schedules are key to successful agricultural lending;
•
Diversification at the portfolio and client household levels can reduce the risk for MFIs;
•
Technology can help lower costs and expand rural finance operations.
Recommendations for practitioners:
•
Plan feasibility studies, piloting and market research to reduce risks of moving into
financing for agriculture and enhance usefulness of financial services to farmers;
•
Assess the impact on the financial institution itself of adapting loans to fit agricultural
cycles;
•
Focus on other financial services as well.
36
Petersen, G. (1994). “Rural Finance in Vietnam”. Unpublished report for the
World Bank.
Ping, X., Zhong, X., Enjiang, C. & Minggao, S. (2005). “Establishing a
Framework for Sustainable Rural Finance: Demand and Supply Analysis in
Guizhou Province of the People's Republic of China”. ADB.
Abstract: This paper examines the demand for financial services from rural households in China.
The paper:
•
Assesses the extent to which the demands have been met,
•
Identifies the purpose for which the finance supplied is being utilized by the poor,
•
Identifies the constraints which come in the supply of credit demand,
•
Analyzes all the issues related to policy, legal, operational environment and organizational
structure of rural financial institutions.
The paper states that:
•
All the issues of rural finance cannot be sorted out by bringing about reforms in the rural
credit cooperatives (RCC) only, as China’s economic development calls for diversified rural
financial institutions and systems.
•
At the heart of rural finance reform there is a need to:
o
Break the monopoly of the RCCs on the rural financial market,
o
Establish a competitive, efficient market,
o
Implement an appropriate supervisory framework regulate.
Finally, the paper makes the following set of policy recommendations for establishing a sustainable
rural finance system:
ƒ Create an enabling environment for the sustainable development of the rural credit
cooperatives;
ƒ Promulgate a community re-investment law and establish a mechanism to reduce the
outflow of postal savings;
ƒ Adopt a market-based interest rate regime;
ƒ Separate regulation from management and implement minimum regulatory requirements.
Preedasak, P. & NaRanong, V. (1998). “Agricultural Cooperatives and Village
Credit Unions in Rural Financial Markets in Thailand”. In The Rural Finance in
Thailand, edited by Nipon Poapongsakorn, et al. Bangkok: Thailand Development
Research Institute. p. 55-82.
Project Consult (IPC) (1988). “Rural Finance in Ghana: A Research Study on
Behalf of the Bank of Ghana”.
Puhazhendhi, V. & Satyasai, K.J.S. (2000). “Microfinance for Rural People: An
Impact Evaluation”. Mumbai, India: National Bank for Agriculture and Rural
Development.
Qureshi, S.; Nabi, I. & Faruqee, R.R. (1996). "Rural Finance for Growth and
Poverty Alleviation". World Bank Policy Research Working Paper No. 1593.
Abstract: To promote agricultural - and hence economic - growth, Pakistan must make more credit
available to agricultural smallholders, the rural nonfarm sector, and women. Subsidizing interest
rates is not the way to help marginal borrowers. Instead, they can be helped through fixed-cost
subsidies and self-selected targeting. Pakistan's rural sector accounts for more than 70 percent of
employment, and roughly two-thirds of rural employment is in agriculture. Less than a third of
rural households get loans, only 10 percent of which are from institutional sources. Pakistan's
credit institutions are not helping the country accelerate agricultural growth and reduce poverty.
To improve performance in the rural economy and efficiency in financial institutions, rural credit
markets must be liberalized. The government needs to initiate the following reforms:
ÆProduce and price controls must be replaced by prudent regulation and supervision, combined
with policies to stabilize the economy.
ÆCommercial banks must operate in a competitive environment. They must be allowed to set
interest rates for rural lending that cover their transaction costs.
Æ Credit must be made available to support productivity growth for agricultural smallholders and
small producers of the rural nonfarm sector, where Pakistan`s growth potential lies.
37
Æ Credit must be made available to women and to the rural poor for consumption-smoothing and
for sustainable income-generating activities.
Policy should be directed at developing a market-based financial system for rural finance, but
because of market failures to support disadvantaged groups, a special-priority program may be
needed to get credit to women, smallholders (with 10 acres or less), and the rural nonfarm sector
(small-scale nonfarm activities such as livestock, fishery, forestry, and rangelands, and industrial
microenterprises). Subsidizing interest rates is not the way to help marginal borrowers. Instead,
they can be helped through fixed-cost subsidies and self-selected targeting. Nongovernmental
organizations (NGOs) should be encouraged to help, keeping in mind such NGO success stories as
the Grameen Bank in Bangladesh and Badan Kredit Kecaratan (BKK) in Indonesia. Commercial
banks should be encouraged to lend on other bases than the mortgage and passbook system.
They could experiment with wholesaling credit through input suppliers, marketing agents, and
NGOs. They should consider lending for such downstream agricultural activities as agroprocessing.
The biggest challenge facing rural finance is the restructuring of cooperatives. The next important
step for the Agricultural Development Bank of Pakistan would be a portfolio audit - the results of
which will determine next steps, such as major restructuring of its portfolio and changing its
ownership. To improve rural financing, the system of property rights, title, and default
enforcement must also be strengthened, among other reforms. This paper - a product of the
Agricultural and Natural Resources Division, South Asia, Country Department I - is part of a larger
effort in the region to analyze major issues of agricultural growth and rural development in
Pakistan and working with the government in developing a strategy to address those issues.
Quinones, B.R. (1992). “Group Lending Approach to Rural Finance in Asian
Countries”. APRACA (Asia-Pacific Rural and Agricultural Credit Association).
Abstract: A compilation of sixteen papers presented during the Chief Executives Conference on
Linking Banks and Self Help Groups held in Kunming, China on October 13-18, 1990. The papers
present experiences on group lending schemes in Asia Pacific, notably Bangladesh, China, India,
Indonesia, Iran, Nepal, Philippines, Sri Lanka and Thailand. An article which identifies potential
areas of difficulties when banking with self help groups (by R.A.J. Roberts and R.T. Gross) and
another which describes the appropriate financial systems which support microenterprise
development (by E. Kropp) are also included in the publication.
Reed, L. & Reiling, P. (1996). “The role of NGOs [non-governmental
organizations] in rural financial intermediation in Ghana”. Washington, DC:
USAID.
Riedinger, J.M. (1994). “Innovation in Rural Finance: Indonesia's Badan Kredit
Kecamatan Program”. World Development 22, no. 3: 301-13.
Abstract: Donor agencies and governments are committing increasing resources to microenterprise credit programmes, much as the earlier funded rural credit. Yet few programmes
embody the lessons from this earlier experience. Central Java's Badan Kredit Kecamatan (BKK)
programme shows considerable promise in providing the access, convenience, and flexibility
desired by poor borrowers while assuring the financial viability of the credit institution by
minimizing administrative costs and imposing interest rates sufficient to cover costs and prevent
capital erosion. Recent progress has also been made in mobilizing voluntary savings. Strong
political support from the government has been crucial to the programme's success. The BKK was
established in 1972 to provide fast, cheap and productive credit to the rural poor to finance
activities that would complement and supplement their agricultural endeavours. The mandate of
the BKK included a number of unique features, such as the level of access, gender neutrality and
reduced incentives for 'rent-seeking' behaviour. The paper looks at some of the problems with the
BKK programme, particularly the low interest seasonal loans, urban bank failures, delayed
borrower repayments, insufficient village outreach and the risk of a reduction in participation by
women. The model may not be transferable because of the conditions under which the BKK was
established, as a direct response to political strife.
Robinson, M.S. (1992). “Rural Financial Intermediation: Lesson from Indonesia”.
Unpublished discussion paper. Harvard Institute for Development, Cambridge
MA.
38
Ruben, R. & Clercx, L. (2003). “Rural Finance, Poverty Alleviation, and
Sustainable Land Use: The Role of Credit for the Adoption of Agroforestry
Systems in Occidental Honduras”. Journal of Microfinance, Vol. 5 No.2.
Abstract: This paper analyzes the relationship between financial services provided by different
agents, the adoption of agroforestry systems, and the implications for food security and
sustainable soil management. Attention is focussed on the role of rural finance in reducing risk and
stabilizing household income and yields. We conclude that credit provision performs critical
functions for reinforcing the resilience of rural livelihoods in lessfavored areas. Rural development
programs in the Occidental region of Honduras have been rather reluctant to provide rural financial
services. Unfavorable agroclimatic conditions and the scarcity of infrastructure lead to extreme
poverty. The local economy is fairly dynamic due to the availability of nonfarm income sources and
crossborder trade. Within the framework of the FAO Lempira-Sur program, provision of rural credit
and savings services created the conditions for adopting the Quezungual agroforestry system. This
innovation contributes to higher and more stable cereal yields and reduced labor demands in
agriculture. Access to rural finance thus reinforces food security and enables income diversification
as a precondition for subsequent in-depth investments.
Sacay, O.J., & Randhawa, B.K. (1995). “Design Issues in Rural Finance”. WB
Discussion Paper, no. 293. Washington, DC: World Bank.
Abstract: The World Bank's policies as embedded in Operational Directive 8.30 have shifted from
the fund transfer objectives of traditional agricultural credit projects to those of building viable
financial institutions which operate within the purview of the rural financial market. However, this
has presented a significant challenge and has had a negative impact on the volume of agricultural
credit lending. The study was inspired by the need to learn how to design and implement realistic
rural finance projects consistent with these policies. This study analyses all of the World Bank's ongoing rural finance projects to arrive at best practices in project design, particularly with reference
to the provisions of Operational Directive 8.30. Design features on on-going rural finance projects
were compared to pinpoint best practices. In addition, design issues were identified and
conclusions reached on these issues. On the basis of these conclusions, guidelines have been
proposed to assist Bank staff in designing sound rural finance projects.
Safavian, M.; Breitschopf, B.; Nagarajan, G. & Meyer, R.L. (1998). Rural Finance
for the Private Farm Sector in Romania: Obstacles and Opportunities. Economics
and Sociology Occasional Paper 2514 ed. Columbis, Ohio: Rural Finance Program
- OSU.
Abstract: This paper describes the manner in which the rural financial market and the private farm
sector operate and interact. The state of the financial market, current lending conditions, and
obstacles to credit flows on the supply and demand sides of the market are reviewed. We argue
that there exists a preponderance of evidence which supports the notion that the limited number
of observed credit transactions in the formal sector may be explained by restrictive factors on the
demand side of the market. Thus, we challenge the conventional wisdom that Romanian farmers
are credit rationed by lenders, and suggest that the limited frequency of credit transactions may
be the result of economically rational decision making on the part of the farm households.
Sanderatne, N. (2002). “Leading Isuues in Rural Finance”. University of
Peradeniya. Sri Lanka.
Abstract: Rural and agricultural finance has re-emerged as a development topic of great interest
for many funding agencies and policy makers. Unfortunately, recent proposals for changing policy
and creating new agricultural development banks suggest that the supporters have forgotten the
key lessons learned from the dismal performance of most agricultural credit programs
implemented in the 1960s to 1980s under the directed credit paradigm. This book once again
reminds us of those lessons. Professor Sanderatne is a recognized rural finance authority in Asia
with both academic and policy experience, and this book reflects a lifetime of research and
analysis of the key issues. The book contains 13 chapters. Three chapters in the first section cover
the functions, features, and evolution of rural financial markets. In two chapters in section two,
the author straightforwardly tackles the contentious issues concerning the role of informal finance
with empirical data presented for Sri Lanka. Section three discusses rural savings mobilization.
Section four on institutional finance covers important topics related to institutional lending in rural
areas. Five chapters deal with the evolution of institutional credit in Sri Lanka, the problem of loan
recovery, interest rate policies, an analysis of the factors that explain small farmer loan defaults,
and political economy issues that contribute to defaults. Taken together, these chapters provide
abundant evidence of how the old paradigm of subsidized farm credit failed to develop sustainable
39
rural finance in the country despite successive programs, policies, institutions and guarantees. The
last chapter ends on a more positive note by reviewing key aspects of outreach and sustainability
of microfinance and identifies strengths and limitations of the new financial system paradigm.
Readers of this book will be reminded about how this prominent figure in the field helped compile
the evidence and arguments, pointing to the failures of the directed credit paradigm in Asia. His
work contributed to the base of understanding used to design the more promising approaches
used today in successful microfinance programs. This material needs to be read by everyone who
suggests quick and easy solutions to the challenges of rural finance.
Satish, P. (2003). “Rediscovering Rural Finance by Retooling the Existing
Institutions”. BASIS - Broadening Access and Strengthening Input Market
Systems.
Abstract: India is home to the largest concentration of farmers in the world and is also a country
where agriculture accounts for a relatively high share of GDP at 24.7 percent. Furthermore, 56.70
percent of the workforce is still engaged in agriculture. Like the proverbial curate’s egg, India’s
rural finance system is good in parts. The good part is that, unlike many developing countries, the
country has a rural finance system that is extensive and well organized. There are thirty State
Cooperative Banks and 369 District Central Cooperative Banks (DCCBs) with network of 13,635
branches, 92,219 Primary Agriculture Credit Societies and 196 Regional Rural Banks (RRBs) with a
network of 14,358 branches. The mainstream Commercial Banks have 32,538 rural and 14,608
semi urban branches whose portfolio is predominantly in agriculture and allied sectors. In addition,
there are twenty State Cooperative Agriculture Development Banks and 739 Primary Agriculture
Development Banks, which are technically not banks, but do disburse credit for investment
activities in agriculture through their network of 2001 branches. However, until the mid nineties,
the entire rural finance system was characterized by a lack of operational freedom due to all
pervasive governmental intervention as well as the control of all aspects of the functioning of the
institutions by the Central Bank of the country, the Reserve Bank of India (RBI). From the mid1950s to the mid 1970s, the main concern of the government was to increase food production, but
during the mid 1970s the focus shifted to poverty alleviation through subsidized credit. The
predominant aim of policy makers from the 1950s to 1980s was to extend the outreach of the
rural finance system and to increase the level of credit flow to agriculture and to poverty
alleviation programs. The issues relating to the development of a proper banking system or rural
financial market involving, proper loan appraisal, recovery and recycling, resource mobilization,
mobilization of savings and sustainability and viability of the operations were ignored or forgotten.
The outcome of these policies was a rural finance system with a poor resource base, high
transaction costs, low or negative margins, mounting bad debts and continuous losses. By 199495 India had reached a stage where the financial needs of the rural population could not be met
without a complete overhaul of the existing system or the creation of an entirely new system.
Schmidt, R.H., & Kropp, B.W. (1987). “Rural Finance: Guiding Principles”. Bonn,
Germany: GTZ.
Abstract: The study shows how the German Agency for Technical Cooperation (GTZ), the German
Foundation for International Development (DSE) and other German institutions for economic
cooperation are in the process of reorienting their approaches and activities in accordance with the
period of transition undergone by rural finance in developing countries over the last 10 years.
Secondly, it offers an orientational framework which adopts, integrates, and makes these new
developments accessible to all those persons who are working on the analysis, design and
promotion of rural finance or are affected by it. After a general introduction, Chapter 2 discusses
the concept of rural finance and the role of the rural financial system in rural development, the
experience with promotion policy to date, and the goals and target groups of the promotion policy
of the GFR. Chapter 3 outlines the conceptual model of a desirable and feasible rural financial
system which benefits the poorer segments of the population. It is the conceptual model which
serves as the basis for the economic cooperation measures offered by GTZ and DSE. The relevant
parameters, financial activities and financial institutions are discussed in this context. Finally,
Chapter 4 describes the promotion policy of GTZ. It shows under which conditions, with which
goals and by which means GTZ can bring its experience to bear and implement its instruments for
the promotion of rural finance in the interests of the target groups.
Schmidt, R.H. & Kropp, E. (eds.) (1987).
Eschborn, Germany: BMZ, GTZ and DSE.
“Rural Finance: Guiding Principles”.
40
Schrieder, G.R. & Heidhues, F. (1995). “Rural financial markets and the food
security of the poor the case of Cameroon”. Savings and Development 1-2: 13154.
Schrieder, G.R. & Heidhues, F. (1995). “Reaching the Poor through Financial
Innovations”. Quarterly Journal of International Agriculture 34, no. 2.
Abstract: The financial systems of developing countries are quite heterogeneous and have
undergone substantial changes over the past two decades. The lessons learned from past formal
financial market failures, the thriving of the informal market, the need to adapt to the general
decline in foreign capital inflows, and the rapid changes in financial technology and banking praxis
is leading most developing countries to reshape their financial market development approach. This
paper discusses modifications in financial technology and banking praxis, referred to as financial
innovations. Financial innovations are crucial in the economic development process. They can
reduce the intermediaries' and the clients' transaction costs and as a result bring about widening,
deepening and integration of financial markets. This process thereby accelerates economic growth
by stimulating savings, investment and production. Despite the well perceived positive effects of
financial innovations on economic development, the wide range of financial innovations that are
anchored around different levels of the financial intermediation process (financial system,
institution, processing, product) have neither been well defined nor classified in development
economics. Nevertheless, there has been wide use of the term financial innovation. This paper
attempts to clarify the innovation debate in development economics. It first defines and
categorizes the diverse types of financial innovations and then discusses their impact on the rural
financial markets' effectiveness to alleviate poverty.
Schrieder, G.R. & Sharma, M. (1999). “Impact of finance on poverty reduction
and social capital formation a review and synthesis of empirical evidence”.
Savings and Development 23, no. 1: 67-93.
Schrieder, G.R. (2000). “Poverty, Rural Financial Institution Building and Gender
Sensitive Demand Analysis in the North-West and West Province of Cameroon”.
Savings and Development 24, no. 1: 95-110.
Abstract: Research on rural finance has devoted little attention to household preferences regarding
financial services. Yet, part of the success of financial institution building depends on the potential
clients' acceptance of the services offered. Cameroon's financial market shows the dualistic
structure of an informal and formal sector, typical for most developing countries. Research on
informal financial markets revealed that particular traits exist that distinguish them from their
formal counterparts. From the 1980s onwards, rural financial institution building started to adopt
instruments of informal financial intermediaries to strengthen their performance. Despite this,
many programmes failed. This paper argues that the adoption of financial instruments in the
informal market ought to be complemented by a forward analysis of households' requirement
profiles for financial services. Conjoint analysis provides a powerful method to (1) predict client
preferences and demand for financial service profiles; and to (2) involve the target group already
in the pre-marketing phase of the financial institution building process. This paper concisely
presents econometric results of an innovative Conjoint analysis application in the context of a
preference analysis in a developing rural economy. The analysis is based on 356 interviews
conducted in 1992 in seven villages of Cameroon. It quantitatively identifies the demand for
specific financial service profiles and formulates policies oriented towards rural financial market
development. Particular stress is laid on demand aspects in financial intermediation that relate to
food security, thus, emphasizing rural women's demand structure. Also, concepts from the New
Institution Economics are integrated in the discussion to interpret the findings of the empirical
demand analysis.
Schreiner, M. & Colombet, H.H. (2001). “From Urban to Rural: Lessons for
Microfinance from Argentina”. Development Policy Review 19 (3), 339–354.
Abstract: The recent success of microfinance for the urban self-employed contrasts with decades
of failure on the part of public development banks for small farmers. This article describes the
ways in which rural microfinance organisations have tried to adapt the lessons of urban
microfinance to manage the risks and control the costs of the supply of financial services in rural
areas. It then asks whether the lessons of urban microfinance are likely to apply in the poorest
rural areas of Argentina. The article concludes that microfinance is unlikely to improve access to
small loans and small deposits for many of the rural poor in Argentina; distances are too great,
41
farmers too specialised, and wages too high. Improved access depends not on targeting loans by
government decree but on strengthening institutions that support financial markets.
Seibel, H.D. (1992). “The Making of a Market Economy: Monetary Reform,
Economic Transformation and Rural Finance in Vietnam”. Saarbruken, Germany
and Fort Lauderdale, Florida: Verlag Breitenbach Publishers.
Seibel, H.D. (1998). “From Cheap Credit to Easy Money: How to Undermine
Rural Finance and Development”. The Netherlands: Mansholt Graduate School of
Social Sciences (MGS).
Abstract: Critiques the idea of cheap and easy access to credit as a poverty alleviation strategy.
Explains the context and evolution of this idea and specifies credit dependency as one of its
effects. States reasons why subsidised and targeted credit negatively affected loan recovery, how
the financial systems were repressed through rigid government regulation, and why the
assumption of a single market rate of interest is a fallacy. Recommends strategies for financial
infrastructure development in the field of micro-finance that emphasise local institutions, memberbased or community based, including:
•
Adapting formal financial institutions to the local environment
•
Upgrading informal or semi-formal financial institutions
•
Linking formal and informal financial institutions
•
Creating new institutions, or infrastructural innovation
States that none of these strategies are universally applicable, or offer an optimal approach, but
that their appropriateness depends on local circumstances and conditions, which first need to be
carefully assessed. Ground rules for intervention are outlined including:
•
Interventions can only depart from the state of the system as a whole at a given point in
time, including the cultural, social and political set-up to which the intervention must be
properly adjusted
•
Acceptance of interventions depends on interactive rather than prescriptive approaches
•
In complex interrelated systems, all interventions have unintended results so careful
impact monitoring is necessary
•
Interventions will at best lead to satisfactory, not optimal, results
•
In evaluating result of interventions it is more important to envisage the overall process of
change
•
Interventions can only succeed with the market, not against the market
•
The market, not governments or donors, decides its acceptance
Seibel, H.D. (2000). “Equity Participation in Financial Intermediaries: A New
Donor Instrument in Rural Finance?” Cologne, Germany: University of Cologne.
Abstract: This paper discusses various parameters that would be taken into consideration for
equity investments. IFAD, while introducing a new instrument for rural financing, would finance
apex institutions. The arrangement provides necessary capital to the sector and strengthens the
capital base of apex institutions. The author elaborates on the requirements for commercially
operating financial apex institutions and other financial intermediaries. There is need for favorable
political environment, regulatory framework and efficient banking system to make equity
participation a viable alternative for transforming non-formal financial institutions into formal
entities. The paper mentions the following points as areas of intervention for IFAD in the order of
magnitude of engagement:
•
Equity participation in financial intermediaries;
•
Investment in existing or new funds;
•
Agency line with development finance institution;
•
Subsidiary agreement or trust deed with a development finance institution;
•
Establishment of an investment fund.
Seibel, H.D. (2000). “Poverty Reduction and Rural Finance: From Unsustainable
Programs to Sustainable Institutions with Growing Outreach to the Poor”.
Cologne, Germany: University of Cologne.
Abstract: This paper offers suggestions for making poverty reduction sustainable in the rural
scenario. It also presents examples of unsustainable project interventions that have turned into
sustainable institutions. The author offers the following suggestions for sustainable poverty
reduction:
•
It requires well-designed, long term development measures and a prudentially regulated
institutional framework;
42
•
•
It must build on individual self-help and institutional self-reliance;
The growth of outreach to the poor is contingent upon the dynamic growth of self-reliant
institutions;
•
It requires political will and adequate policies;
•
Rural and microfinance have a crucial role to play in it;
•
Only viable institutions can continually increase their outreach to the poor.
The paper lists the following seven projects that have gradually become sustainable:
•
An income-generating project for marginal farmers and fishermen in Indonesia;
•
The support given by donors to institutional diversity in Guatemala;
•
Rural Financial Services in Armenia, Albania and Macedonia;
•
The formation of self-governed cooperatives in Nepal;
•
The reform of Savings and Credit Cooperatives (SACCOs) in Tanzania;
•
The Center for agricultural and Rural Development (CARD) in the Philippines;
•
The reform of an agricultural development bank in Thailand;
•
Bank Rakyat, Indonesia.
The paper concludes by stating that donors may contribute to sustainable poverty alleviation by
strengthening associations of microfinance institutions (MFIs) as well as large-scale financial
intermediaries.
Seibel, H.D. (2001). “Rural Finance for the Poor: From Unsustainable Projects to
Sustainable Institutions”. IFAD Rural Finance Working Paper No. 83285.
Abstract: The large majority of the poor and poorest are rural That has to be uppermost in our
minds as we think about what microfinance means. For IFAD, the finance issue is crucial to the
task of reducing rural poverty. We do not insist on any particular institutional model. The demand
for financial services is very diverse even among the poor, and we believe that any sustainable
response will have to be pluralistic. Some require access to more capital than local savings
systems allow. I am thinking about those who face clear investment opportunities that will allow a
sustainable improvement in food security and income. For this sort of effective demand to be met,
it is essential that we foster linkages with upstream financial institutions with a much larger capital
base. Support can take a wide variety of forms, from intense training of qualifying microfinance
institutions, so they may become viable partners with the private sector, to taking equity stakes in
private-sector institutions to increase their rural outreach. We have to keep in front of us how the
rural poor make their livelihood. If we do that we can begin to chart the concrete means of
reducing poverty – and understand the challenges that microfinance and microfinance institutions
must confront.
Seibel, H.D.; Lubbock, A. & Dommel, H. (2002). “Women and Men in Rural
Finance in the Syrian Arab Republic: State-Owned Banking vs. Self-Manged
Microfinance”. AEF University of Cologne.
Abstract: Document states that there is serious concern about social equality, equal opportunities
and the effectiveness of financial institutions to provide service outreach. Examines:
•
Access of men and women to rural finance under conditions of social equality and
economic disparities;
•
Client and institutional perspectives on transforming an unviable bank - Agricultural
Cooperative Bank (ACB) - into a sustainable financial intermediary with outreach to lowincome men and women;
•
Men and women owners and users of Sanduq - a microfinance innovation in Syria.
It finds that the Sanduq is a financial institution of the people, which has demonstrated that:
•
Poor men and women can save, invest small short-term loans profitably and repay their
loans on time;
•
The poor can manage their own financial institutions with prudence and provide
appropriate financial services;
•
A culturally appropriate way has been found of empowering women through joint
ownership of the MFI, but separate appraisal of loan applications by the women
themselves. As viable financial institutions, the sanadiq have expanded their outreach.
The paper finds that ACB:
•
Might have an important role to play in the growth of rural finance;
•
Is weak through its lack of autonomy resulting in governance problems and a mixed
between profitable commercial operations, loss making operations and inverse interest
rate structure.
IFAD proposes to provide credit funds through arrangements with ACB and to finance incomegenerating activities through sanduq, which could lead to linkages between the institutions and the
wider financial environment.
43
Seibel, H.D. (2004). “What Matters in Rural and Micro Finance”.
Cologne.
University of
Abstract: This paper is a brilliant résumé of ...well, what matters in rural and microfinance. It is
full of wise advice for donors and policy-makers. Dieter Seibel starts by providing historical
perspective, reminding readers about the two worlds of development finance - the old needsdriven approach and the new institution-building approach. He provides an excellent tabulated
summary of how these two worlds differ in terms of a whole variety of factors, e.g. policy
environment, legal framework, institutional focus, selection of clients, agricultural banks, rural
banks, remote areas, sustainability and many more. He reviews the rural and micro finance
market, noting that one might conclude from the CGAP Micro Banking Bulletin that there are
relatively few viable MFIs in the world but also pointing out that when you take into account rural
credit cooperatives in China, rural and village banks in Indonesia, rural banks and savings and
credit cooperatives in the Philippines, community and rural banks in Nigeria and Ghana, and the
vast numbers of banks, cooperatives and self help groups in India, the numbers don't look quite so
small. Worldwide the number of informal financial institutions probably runs into the tens of
millions.
Seibel, H.D. (2005). “Rural Finance Innovations: Topics and Case Studies”.
World Bank.
Abstract: Financial market liberalization, innovations in the area of risk management, and
reductions in transaction and supervisory costs have had significant positive impacts on
agricultural finance institutions. Building on these positive developments, this study will attempt to
contribute ideas based on recent experiences with innovation from developing countries in order to
spur more innovations in rural finance. This study focuses on four key areas where innovation
could lead to greater access to agricultural finance: warehouse receipts and collateral securitization
mechanisms; risk management products; supply chain finance; and technology. The paper
describes the issues surrounding the themes and how innovative techniques can be used to
overcome traditional barriers to providing financial services to agriculture by reducing either the
risks associated with lending, the costs, or both. The diverse group of case studies and thematic
discussions also underscore some key lessons regarding the role of government in its quest to
lower costs and risk in the rural finance space.
Selvavinayagam, K. (1995). “Improving Rural Financial Markets For Developing
Microenterprises”. FAO Iinvestment Centre - Occassional Paper Series No. 2.
Abstract: There is virtual consensus on the need for expanding and strengthening microenterprises
(MEs) in rural areas. This is in part due to the potential they offer for employment creation,
poverty alleviation and a healthier economy in general, and in part due to recognition that the
capacity of the agricultural sector to absorb the increasing number of rural people in more
densely-populated countries and regions is very limited. One of the few alternatives to rural-urban
migration (with all its attendant problems) is the promotion of MEs. The development of this sector
is largely hindered by its limited access to formal credit which has been a persistent criticism of the
financial system around the world (The World Bank, 1994). This limitation reflects rising concerns,
both among policy makers and donors about the slow pace of rural financial market development.
The last decade has seen the emergence of active financial and other assistance to MEs by both
formal and informal financial institutions, aided by donor agencies including the World Bank, the
Asian Development Bank, International Fund for Agricultural Development, Inter-American
Development Bank and the United States Agency for International Development. Even with a more
diverse and competitive financial sector and a stronger flow of saving and investment stimulated
by current policies for monetary deregulation, special measures will still be needed to improve
financial services to MEs. The problem is a common one; such enterprises are usually perceived as
uncreditworthy borrowers because of their riskiness, weak capital positions, non-existent credit
history and lack of collateral (Binks, 1979). The deepening of rural financial intermediation and a
more diversified provision of financial services to support the economic activities of rural
communities in a cost-effective and sustainable manner therefore becomes critical. Although
several studies have been carried out in the past by the governments, donors and others,
information on the functioning of the rural financial markets, particularly, of the informal financial
institutions and schemes operated by NGOs, is still not widely known. The paper attempts a review
of operational experiences with special focus on what does and what could work in developing
rural financial markets. This review is mainly confined to experiences of microfinance institutions in
Asian countries.
44
Senanayake, S.M.P. & Ho, D.P. (2001). “What Makes Formal Rural Financial
Institutions Successful in Viet Nam ?” Savings and Development, Issue no. 4,
2001.
Abstract: This paper uses original data from a survey of 62 Formal Rural Financial Institutions in
Vietnam in order to analyse factors contributing to the success of these institutions. The results
obtained by using regression analysis confirm that there is a strong correlation between borrower
outreach and mobilisation of savings and also between low default rate and use of incentive
mechanisms to repay. A correlation also exists between the number of field level units of the
institutions and the low default rate. The analysis leads to the conclusion that alternative policies
should be implemented if the lending efficiency is to be improved.
Sharma, M. (2000). “The Scope for Policy Reforms in Rural Microfinance”. IFPRI.
Rural Financial Policies for Food Security of the Poor. Policy Brief No. 14.
Abstract: This policy brief considers the scope for policy action in seven areas: Regulation of
microfinance institutions, provision of saving services, product innovation, organizational issues in
microfinance, poverty impact of microfinance, agricultural finance, and subsidy and sustainability
issues.
Sharma, M. & Zeller, M. (2000). “Rural Financial Services for Poverty Alleviation:
The Role of Public Policy”. IFPRI, Rural Financial Policies for Food Security of the
Poor. Policy Brief No. 7.
Abstract: This brief begins from the premise that access to credit and savings functions has the
potential to make the difference between poverty and an economically secure life. Yet at the same
time it notes that in most developing countries, rural financial services remain inadequate and
largely provided through informal mechanisms and markets. It suggests that as innovative and
useful as the informal sector may be, it frequently runs up against severe constraints. For
example, informal credit markets, by their very nature, are segmented. Financial intermediation in
the form of a clearinghouse for borrowers and lenders does not take place to the fullest extent
possible, resulting in credit rationing or extremely high interest rates. The brief argues, therefore,
that overall, the task of delivering financial services to the rural poor cannot be left entirely to
market forces. Successful financial outreach to the rural poor requires institutional innovations that
reduce the risks and costs of lending small amounts of money. Whilst noting that there is no single
institutional blueprint for success, the brief suggests that just as public policy should play a role in
promoting technological innovations that generate social benefits, it should help promote
institutional innovations that assist the disadvantaged or address intrinsic market failures. The
brief further argues that some experiments in institutional innovations will succeed and some fail
but public policy will need to support and evaluate this experimentation process and nurture those
designs or institutions that hold promise of future success. Governments, donors, practitioners,
and research institutions must work together closely to pinpoint the costs, benefits, and future
potential of emerging financial institutions. In the long run, the brief concludes, the payoff to
public investments in institutional innovations will lie in the transformation of currently nascent
microfinance institutions into fully-fledged, financial intermediaries that offer savings and credit
services to smallholders, tenant farmers, and rural entrepreneurs, thus alleviating policy. Links
have also been provided below to a fuller study on this topic conducted by the same authors,
"Rural Finance and Poverty Alleviation", which cites evidence derived from nine countries in Asia
and Africa.
Sisodia, N. et al. (2005). “Rural Finance in Contemporary Times: Interface with
Microfinance”. Vikalpa, 30(2): 81 – 109.
Abstract: In India, when we talk about rural finance, the stereotype offered is that of a banking
system that fails to reach out to the poorer clients and, when it does, fails to recover the money so
disbursed. The counter-point offered is usually the magic wand of microfinance. This Colloquium
was an interface between leading bankers and microfinance practitioners in India to examine
where these two worlds meet and how they could learn from each other. The discussions were
organized around three themes: a) the legacy of the banking system, b) the limitations of
microfinance, and c) an assessment of the potential. On the issue of legacy, the message was
clear that the intervention of the state in certain aspects has been undesirable. These areas were
clearly identified as granting general pardon for loans, tinkering around with interest subsidies,
and interfering with the commercial aspects of banking. The limitations of the microfinance
institutions were in terms of their sustainability and their inability to draw commercial capital and
grow rapidly. However, these limitations were partly seen as a consequence of regulatory apathy
and support from the state both in terms of formulating and articulating a regulatory framework
45
and also in terms of the central bank being reluctant to supervise the efforts. These did not help in
enhancing the legitimacy of microfinance institutions. The participants saw a great potential in the
rural markets which were beyond agriculture. The emerging sectors were identified as
construction, non-farm enterprise, handloom, clusters that involve garment making and quarrying,
etc. According to them, there was scope for both the banks and the microfinance institutions to
intervene. The following points emerged from the discussion:
•
Rural finance has suffered from interventions from the state in the past. While some
interventions have been positive, they have harmed the sector when compromises such as
write-offs have been made.
•
Microfinance has emerged as an important mechanism to reach out financial services to
the poor. There are interesting lessons from this for the banks to adopt.
•
There are problems for the microfinance institutions in the form of regulatory and
supervisory apathy. This leads to financial exclusion of large segments of the poor.
•
There is a huge market for financial services — both loans and savings.
•
Innovations across the world indicate important breakthroughs in delivery of financial
services. These can be implemented provided the regulatory impediments are removed.
•
The issue of risk management has to be systematically addressed.
•
The role of the state, wherever positive, has been effective and, therefore, this should be
sharply defined to see how the state could contribute to this sector.
•
The issue of interest rates continues to be vexatious and needs to be addressed urgently.
Skees, J. (2003). “Risk Management Challenges in Rural Financial Markets:
Blending risk-management innovations with rural finance”. paper presented at
Paving the Way Forward for Rural Finance: An International Conference on Best
Practices, sponsored by USAID and WOCCU, Washington, D.C., June 2-4, 2003.
Abstract: Rural finance is about managing risk. Lenders can effectively pool and aggregate risk
held by a large number of borrowers if the risk they face is largely independent. A major
advantage of microfinance entities and other forms of collective action has been the ability to pool
risk. However, correlated risk can not be pooled. Small rural finance entities (RFEs) are simply not
capable of pooling and managing correlated risk on their own. Agriculture remains a dominant
activity in many rural economies of the poorest nations in the world. A large majority of the
poorest households in the world are directly linked to agriculture in some fashion. Risks in
agriculture are correlated. When one household suffers bad fortune it is likely that many are
suffering. When agricultural commodity prices decline everyone faces a lower price. When there is
a natural disaster that destroys either crops or livestock, many suffer. Insurance markets are
sorely lacking in most developing and emerging economies, and rarely do local insurance markets
emerge to address correlated risk problems. There a numerous challenges in developing financial
markets to manage risk in developing countries. Many of these are reviewed in this paper.
Nonetheless, there is hope. This paper builds upon that hope by reviewing innovations in global
financial markets that provide unique opportunities for RFEs to manage correlated risk and expand
their ability to help rural households. Two innovations offering the most hope are: 1) the use of
global futures markets by intermediaries who can offer a form of price insurance; and 2) the use of
index insurance contracts to shift natural disaster risk into the global markets. Recommendations
are offered for blending these forms of index insurance and rural finance.
Srinivasan, R. & Sriram, M.S. (2005). “Rural Finance in Contemporary Times:
Interface with Microfinance (in India)”. Indian Institute of Management.
Abstract: In September, 2004 a colloquium was held at the Indian Institute of Management,
Ahmedabad, which brought together leading bankers and microfinance practitioners to discuss the
interface between rural finance and micro finance. When people talk of rural finance in India, the
stereotype offered is that of a banking system that fails to reach out to the poorer clients and,
when it does, fails to recover the money so disbursed. The counter-point offered is usually the
magic wand of microfinance. Participants in this Colloquium set out to examine where these two
worlds meet and how they could learn from each other. The discussions were organized around
three themes: The legacy of the banking system, the limitations of microfinance, and An
assessment of the potential. On the issue of legacy, the message was clear that the intervention of
the state in certain aspects has been undesirable. These areas were clearly identified as granting
general pardon for loans, tinkering around with interest subsidies, and interfering with the
commercial aspects of banking. The limitations of the microfinance institutions were in terms of
their sustainability and their inability to draw commercial capital and grow rapidly. However, these
limitations were partly seen as a consequence of regulatory apathy and support from the state
both in terms of formulating and articulating a regulatory framework and also in terms of the
central bank being reluctant to supervise the efforts. These did not help in enhancing the
legitimacy of microfinance institutions. This colloquium report is a fascinating example of policy
46
dialogue in which key actors set out their views on the selected topic and provide critical guidance
for decision-makers. Some examples: "Most of us assume that the quality of life will automatically
change if only we have money. Therefore, we attribute most of the ills of the rural areas to lack of
access to credit. … It is a fallacy." "We need to find mechanisms of providing an opportunity for
depositors and for protecting their interests. This can be done by having depositors involved in
governance." "Commercial banks need to recognise the value of providing consumption credit – a
single-minded focus on production credit may be self-defeating since incorporating consumption
needs appears to reduce loan default." "It is important that institutional support for microlivelihoods be in place for financial services to have value.""The century old rural cooperative credit
system is in poor shape and carries a warning for those who do not wish to learn from history."
This report contains much of interest not only for people in India but for all policy makers with an
interest in the problems of and prospects for improving rural financial services. It is also an
excellent example of the way in which policy dialogue can be conducted, in the interests of
improving the policy framework to enable mainstream banks and microfinance institutions meet
the challenging demand for financial services in rural areas.
Thillairajah, S. (1994). “Development of Rural Financial Markets in Sub-Saharan
Africa”. World Bank Discussion Papers 219 ed. Washington, DC: World Bank.
Abstract: The report is a regional overview drawn from several country case studies intended to
stimulate further research and discussion in the countries of sub-Saharan Africa (SSA), the donor
community and the World Bank itself. The study draws on the experience and lessons from several
countries (mainly Benin, Ghana, Kenya, Madagascar, Malawi, Niger, Nigeria and Tanzania), but
does not attempt to summarize all the findings in the country studies. The report attempts to
synthesize the promising elements in rural finance operations reviewed in countries within and
outside SSA, with the focus on savings mobilization, improving loan portfolio management,
reducing transaction costs, etc. The experiences reviewed point to the relatively successful
performance of the informal sector, particularly financial cooperatives, group finance and trade
finance, and the promise it holds through possible greater integration with the formal financial
system for the development of viable rural financial markets in SSA. Chapter 1 explains the
emphasis placed on rural financial markets development, on financial intermediation, on the
financial viability of lending institutions and sustainability of the financial systems, including the
informal systems, serving rural households and enterprises. A summary description of the financial
systems and rural financial services with special reference to SSA countries is provided in chapters
2 and 3. The importance of interest rates, transaction costs, and risk management is discussed in
chapter 4. The role of governments and aid agencies is the theme of chapter 5. Lessons of
experience, drawn from the country cases and special reviews as well as the most promising
initiatives are summarized in chapter 6. The key issues identified in the course of study are
recapped in chapter 7, and findings and recommendations are summarized in chapter 8.
Townsend, R.M. (1995). “Financial Systems in Northern Thai Villages”. Quarterly
Journal of Economics 11(4): 1011-1046.
Abstract: Field research attempted to measure the risky environments, the information structures,
the institutions, and the risk-response mechanisms of ten villages in northern Thailand. Various
key features are then modeled in an abstract but realistic way, either with a full-information risksharing model or an information-constrained version of the same model. Observations from some
of the villages seem consistent with one or the other of these models, but in many of the villages
one is left with risk-response variations across households which suggest that Pareto
improvements are possible.
USAID. (2005). “A Fresh Look at Rural and Agricultural Finance”. RAFI Notes
(Rural and Agricultural Finance Initiative) Issue 1.
Abstract: RAFI (Rural & Agricultural Finance Initiative) Note #1 begins the series by discussing the
benefits and challenges of two approaches in rural and agricultural finance: the financial sector
approach and the value chain approach. The Note proposes a complementary approach that builds
off the strengths of using both a financial sector lens and a value chain lens.
Van Empel, G.J.J.M. & Sluijs, J. (2001). “IFC Rural Finance Study: Analysis of
strategies, approaches, best practices and workable solutions of the multilateral
and bilateral donors”. Rabo International Advisory Services BV.
Abstract: This study made an inventory and analysis of the strategies, approaches, best practices
and workable solutions of the multilateral and bilateral donors. The projects examined were
targeted to the private sector and had to show sustainability and have good outreach. Analysis of
47
the different projects came from personal interviews of different staff within the donors'
organizations, previous work completed in the field of rural finance and different strategy papers.
Vogel, R.C. (1981). “Rural Financial Markets: Implications of Low Delinquency
Rates”. American Journal of Agricultural Economics 63, no.1: 58–65.
Abstract: In contrast to most developing countries, nonrepayment of agricultural loans has not
been a problem for the Costa Rican banking system. Delinquency rates have in fact been lower for
agricultural than nonagricultural loans and lowest on loans to small farmers. This good
performance is due largely to efficient techniques developed for gathering information about
potential borrowers and incentives for borrowers to repay promptly to maintain access to bank
loans which carry interest rates substantially below equilibrium. The pattern of low delinquency
rates reflects the structure of low interest rates which causes farmers, especially small farmers, to
be rationed most severely.
Vogel, R.C. & Adams, D.W. (1997). “Old and New Paradigms in Development
Finance”. Savings and Development 22(4): 361-382.
Von Pischke, J.D.; Adams, D.W. & Donald, G. (eds.) (1983). “Rural Financial
Markets in Developing Countries”. Baltimore, Md.: The Johns Hopkins University
Press.
Von Pischke, J.D. (2003). “The Evolution of Institutional Issues in Rural Finance
Outreach, Risk Management, and Sustainability”. Lead Theme Paper at Paving
the Way Forward for Rural Finance: An International Conference on Best
Practices, Washington, D.C., June 2-4, 2003.
Abstract: This paper provides an overview of the opportunities that have evolved in donor-funded
rural finance. It presents the issue in institutional terms. The paper suggests the checking of
institutional viability of rural finance organizations against the three elements represented by the
microfinance triangle - financial sustainability, outreach to the poor, and impact. It further
emphasizes on including transparency as a fourth element that is essential for risk management.
The paper presents, in five parts:
•
•
•
•
•
The past: reviews the costs of inappropriate technical efforts in a hostile political
environment and provides cautionary measures,
The continuing: studies institutions based on donor grants and confronts possible areas of
weakness as well as the risk management challenges they may pose.
The recent: discusses institutional changes in financial markets that facilitate the
movement of the frontier of formal finance towards the poor. It also draws a hypothesis
about how important institutions of microfinance might relate to the rural finance revival,
and notes the rise of commercial financial service providers.
The open: addresses future possibilities and outlines new institutional forms and responses
that could help more poor people through rural finance.
The annex: lists institutional features or attributes that may be helpful to donors in their
searches for entities that would implement their interventions in rural finance.
Wenner, M. (2000). “Lessons Learned in Rural Finance at the Inter-American
Development Bank”. IADB - Inter-American Development Bank.
Abstract: This paper discusses the problems in rural finance markets in Latin America and the
need for a conceptual framework, actions and policy reforms that are needed to develop the
financial market
The author discusses:
•
The financial depth, efficiency indicators and access to formal financial services (credit and
deposit services) in various countries in the continent;
•
The lack of other services such as insurance and commodity-linked services;
•
The need for a conceptual framework for analysis to unify the consideration of risk,
imperfect information and high transaction costs, which he identifies as being the main
causes of problems;
•
The strengths and weaknesses of formal intermediaries (banks and finance companies),
informal intermediaries (supplier-traders, money lenders, etc.) and semi-formal
intermediaries (NGOs, credit unions, village banks and cooperatives).
48
He recommends the following actions to promote a competitive, efficient and stable rural financial
market:
•
•
An improved policy and institutional environment conducive for rural intermediation;
Better intermediary retail capacity – ways to improve operational efficiency in rural
financial institutions and investment in new financial technologies;
•
Introduction and diffusion of financial instruments other than credit.
The paper concludes with the argument that there is much to be done in improving rural financial
intermediation in Latin America. There is a need to develop the legal, regulatory and information
environment and to build stronger rural financial institutions.
Wenner, M. (2001). “Making rural finance work”. Microenterprise Development
Review, 3(2): 1-4.
Abstract: The paper states that there are problems of risk, imperfect information, and high
transaction costs in rural finance. Concerted and sustained actions will be needed in policy,
institutional, and product development. Governments and international development organisations
should lay a sound foundation of policy and institutional reforms Identifies problems of rural
finance and says that rural finance faces the same general set of challenges as urban finance
•
•
•
how to cope with imperfect client information
how to manage and mitigate risk
how to minimize transaction costs
Paper acknowledges that for a number of reasons, these problems are significantly more severe in
rural areas. There is a renewed interest in rural finance as institutions have managed to overcome
or neutralise some of the difficult challenges characterizing rural markets and rural finance is
getting a fresh look. Concludes that
•
•
while much progress has been made in overall macroeconomic and financial market
policies in the last decade, much work is needed in improving the legal, regulatory, and
information environments and in building stronger rural finance retail institutions
the laissez-faire notion of "getting prices right" is not enough; it must be complemented by
the idea of "getting institutions and technologies right", particularly once basic financial
and economic liberalisation has occurred
Wenner, M. & Proenza, F.J. & IABD. (2001). “Rural finance in Latin America and
the Caribbean: challenges and opportunities”.
Abstract: The paper sees that, despite substantial financial deregulation in larger financial
systems, rural financial markets in Latin America are shallow, segmented, and inefficient. Reviews
current situation and the causes of the problems observed in rural finance in Latin America and the
Caribbean. Presents a conceptual framework that explains why these markets do not work well
andwhy formal intermediaries find small-scale entrepreneurs unattractive clients. It highlights
areas that show promising solutions to those problems and identifies the main actions and policy
reforms that are required to resolve the problems identified. It says that the principal reasons for
the observed market failure are:
•
pervasive risks
•
information asymmetries
•
high transaction costs present in rural financial markets
It suggests that in order to improve the situation, yet avoid government failure, there should be
policy reform, institutional capacity building and new product development. Discusses the role of
donors and national governments and says their role is primarily to create a conducive
environment and the role of the private intermediaries is to assume risks and to provide financial
services. Concludes that
•
the financial market and economic policy liberalisations that occurred in the late 1980s and
early 1990s in Latin America and the Caribbean were necessary but not sufficient
conditions for the deepening and improved functioning of rural financial markets.
Wenner, M. & Vives, A. (2001). “Rural Finance Strategy”. IADB.
Abstract: The principal purpose of this strategy is to orient the operational staff of the Bank
responsible for designing rural finance projects. In so doing, it complements and extends the
financial markets strategy. The secondary purposes of the strategy are: to serve as a point of
departure for discussions between the Bank and member governments on this topic; to help
member governments design their own rural finance strategies; and to assist the Bank
49
management in understanding the issues and institutional implications of adopting and
implementing the strategy. The objective of the Bank’s rural finance strategy is to promote the
provision of efficient, broadlybased, and sustainable rural financial services. In order to achieve
this end, actions are being proposed in three areas: (1) creation of a favorable economic, legal,
and financial regulatory environment; (2) creation of sustainable and efficient financial
intermediaries dedicated to serving rural areas; and (3) promotion of new financial services, such
as insurance, leasing and factoring, in those markets where the first two actions are well
advanced. The document is not specifically focused on agricultural finance but recognizes
agricultural production and marketing as the significant part of most rural economies in presentday Latin America and the Caribbean. The rural, nonfarm sector is an increasing by important part
of the rural economy, representing a growing share of total rural income and employment.
Accordingly, much of the document highlights issues such as the need to develop financial services
other than short-term credit (namely medium- and long-term credit, deposits, insurance, leasing,
and inventory credit) that will specifically enhance the productivity and expansion possibilities of
nonfarm service, processing, and manufacturing enterprises.
Wenner, M.; Alvarado, J. & Galarza, F. (eds.) (2003). “Promising Practices in
Rural Finance: Experiences from Latin America and the Caribbean.” Academia de
Centroamerica, Centro Peruano de Estudios Sociales. Lima, Peru: Inter-American
Development Bank.
Wenner, M. (2004). “Issue Brief on Rural Finance”. SEEP Network, Handout
during Innovations in Rural Finance Training.
Abstract: In developing countries, access to rural financial services (credit, deposits, transfers,
insurance) has been problematic for decades. From approximately 1950-90, state led supply-side
interventions were the norm. In the 1990s, the paradigm shifted form one of directed, subsidized
credit channeled through a state-owned agency to one of liberalized interest rates and private
sector driven intermediation. Efforts were made to either reform or liquidate state-owned
agricultural banks and other government credit programs. With a few exceptions, mostly in Asia,
state-owned rural financial institutions are now a shadow of their former selves. In the vacuum
created, however, few large-scale, robust, and commercially oriented, privately owned, rural
financial institutions have emerged. Rather the vacuum has been partially filled with many small,
non-regulated credit granting institutions and semi-formal arrangements that do not satisfy all the
demand for financial services. Many of the current rural intermediaries are not sustainable and
offer only a limited set of financial products. The reasons why rural financial markets do not
function well are well documented—low effective demand due to high incidence of poverty and low
rates of return for most rural productive activities; severe asymmetric information problems; high
transaction costs due to poor communications infrastructure and spatial dispersion of clients; high
levels of unmitigated risk stemming from lack of insurance products, weak contract enforcement,
and inadequate regulatory frameworks; and lastly, inappropriate service delivery technologies. To
date, policy makers have not found the will or the resources to systematically eliminate the
aforementioned obstacles that make the construction of deep, competitive, and efficient rural
financial markets exceedingly difficult. From practical perspective a number of gaps exists that
hinder the development of better functioning rural financial markets. Namely, accurate and reliable
information is lacking, not so much on what to do but on how to do it in a cost effective manner.
World Bank. (1996). “Bangladesh-Rural Finance Agriculture and Natural
Resources Division. Report No. 15484-BD”. Washington DC: World Bank.
Abstract: The objective of the study was to identify specific actions that would reduce existing and
potential financial sector constraints to agricultural and rural development. The aim would be to
develop, over time, an efficient and sustainable system of rural financial intermediation. The
'system' is visualized as an integrated whole comprising of formal, semi-formal and informal
sectors, which exploits the comparative advantages of different intermediaries in cost-effectively
delivering financial services to rural areas. Particular emphasis is paid to identify practical and
cost-effective mechanisms of expanding services to sections of the population who currently have
little or no access to such services, especially the small and marginal farmers and entrepreneurs
including w omen.
World Bank. (1997). “Kyrgyz Republic: Rural Finance Project, Staff Appraisal
Report”. Washington DC: World Bank.
50
World Bank, (1998). “A framework for World Bank Group support for
development of micro, small enterprise and rural finance in Sub-Saharan Africa”.
Abstract: The framework presented in this report explores how the resources of the Bank Group as
a whole can actively help Sub-Saharan Africa to foster private sector growth, strengthen the
institutional underpinnings for product and financial markets, and facilitate the entrepreneurial
eforts of the poor to earn sustainable livelihoods. The Bank's strategy is to increase access to
financial services by small enterprises and low-income households by addressing three principal
areas:
Fundamental issues - the policy, legal, and regulatory frameworks that allow innovative financial
institutions and instruments to develop; institution building - exposure to and training in best
practices that banks and microfinance institutions need to expand their outreach and develop
sustainable operations, along with performance-based support for capacity building; and
innovative approaches - leasing, lending, and other products that the Bank can use to increase
access to financial services. While common principles apply to developing financial systems that
serve the majority of African populations and businesses that lack access to banking services, this
strategy differentiates between the financial and development needs of microenterprises, small
and medium-scale enterprises, and rural households.
World Bank. (1998). “India: Draft Rural Finance Report”. South Asia Region.
Washington DC: World Bank.
World Bank & IFAD, (2000). “Ghana – Rural Financial Services Project”.
Washington DC & Rome..
World Bank. (2003). “Rural Finance Services: Implementing the Bank’s Strategy
to Reach the Rural Poor”. Washington, DC: World Bank.
World Bank. (2004). “Colombia - Rural finance - Access Issues, Challenges and
Opportunities”. Vol. 1 of 1.
Abstract: The history of rural finance in Colombia is characterized by a system which channels
benefits to limited numbers of beneficiaries, at the expense of the economy as a whole. This paper
finds that access to financial services in rural Colombia is limited and segmented, and traces this
to:
•
Inadequate services;
•
Lack of innovation in financial intermediation in rural areas;
•
Outdated model of public intervention in agricultural credit.
The paper recommends reforms to exploit the existing private (including cooperative) and public
institutional base, and calls for:
•
Re-directing public interventions;
•
Substantially expanding institutional outreach;
•
Facilitating high quality financial services in rural areas.
In the past powerful agricultural lobbies, such as coffee, livestock etc., have led to sector-biased
legislation in Colombia. Hence the paper also calls for a review of the policy environment in the
country:
•
Substantially revising the usury law;
•
Reforming the legal and judicial framework;
•
Using moveable property as collateral.
World Bank. (2005). “Rural Finance Innovations: Topics and Case Studies”.
Abstract: his study of innovations in agricultural finance seeks to educate policy makers, task
managers, and practitioners by highlighting four key areas where innovation could lead to greater
access to agricultural finance: Warehouse receipts and collateral securitization measures; risk
management products; supply chain finance; and technology. The paper explores these themes by
giving examples from around the world where these strategies are being applied. Because many of
these case studies are in the nascent stages, a full analysis of their “success” cannot be made at
this point in time. The paper attempts to address the outcomes to date, and where the case
studies are sufficiently advanced, give an indication of their results. The paper describes the issues
surrounding the themes and how innovative techniques can be used to overcome traditional
barriers to providing financial services to agriculture by reducing either the risks associated with
lending, the costs, or both. The diverse group of case studies and thematic discussions also
51
underscore some key lessons regarding the role of government in its quest to lower costs and risk
in the rural finance space. This paper makes considerable use of tables to summarize and make
the information easy to assimilate. The appendices, for example, have a useful overview of
physical and financial price risk management instruments and enabling technologies. The blend of
theory and practical examples is also extremely useful to those who are less familiar with any of
the four key themes that the paper addresses.
World Bank. (2005). “Meeting Development Challenges: Renewed Approaches to
Rural Finance”. Agriculture and Rural Development Department. WB Approach
Paper.
Abstract: The key purpose of this rural finance approach paper is to provide practical guidance to
World Bank staff that design and implement rural finance projects. It aims to assist staff to
knowledgably choose appropriate design as well as to enable them to provide advice and guidance
to their counterparts in partner countries. The primary target of the paper is task team leaders
who are non-financial sector specialists working on rural development, irrigation and other
programs and projects where access to finance is an issue. This paper largely focuses around the
financial institution level of rural finance sector development and aims to create awareness of the
complexities of rural finance and its relevance for rural development, and to explain the principal
methods and solutions that have been successful. In doing so, the paper begins by providing an
overview of the main issues restricting rural finance on the three levels of policy, enabling
environment and institutional capacity. It also discusses the issues of appropriate subsidies and
the use of grants versus credit. The meat of the paper then provides an analysis of the delivery
channels and models for supporting rural finance, including special purpose institutions and
products, and an overview of several cross-cutting issues. The preceding sections are illustrated
throughout with useful case studies from a broad range of counties. In the concluding section the
paper pulls this discussion together and sets out a practical approach to the formulation of a
country-specific rural finance strategy. The practical strategy formulation developed is broken
down into the following sections:
1. Information on the key elements of the policy context, enabling environment, and financial
institutions are collected and analyzed, along with information on the characteristics and
structure of the real sector
2. Findings from step one are then coupled with an analysis of the demand for financial
services in the proposed project area
3. Conclusion of the analysis with the identification and prioritization of intervention options
This three-step focus is intended to provide a structure that will guide task-managers and help to
ensure that all important elements in the project design process are considered.
Wynne-Williams, J. & Coleman, B. (2006). “Rural Finance in the Lao People's
Democratic Republic: Demand, Supply, and Sustainability”. ADB.
Abstract: This study is based on a national survey of nearly 1,200 rural households, as well as all
commercial banks and known microfinance initiatives in 2004, and provides a comprehensive
overview of rural finance in the Lao PDR. The study finds that the formal sector (banks) and
semiformal sector (microfinance initiatives) are not meeting the demand for financial services of
the vast majority of rural households in the Lao PDR. However, the study notes that the
Government's new market-oriented policy has the potential to have a significant positive impact on
sector development. Further the key recommendations of the study include the following:
•
Carrying out concrete actions to operationalize the new market-oriented policy;
•
Phasing out directed lending from the banking sector;
•
Supporting commercial microfinance initiatives through improvements in the policy, legal,
and regulatory environment;
•
Attracting foreign investment in the microfinance sector;
•
Ensuring that private microfinance
sustainability from the outset;
•
Holding regular stakeholder meetings to provide feedback to the authorities and propose
new solutions to further develop the rural finance sector.
initiatives
follow
good
practices
and
focus
on
52
Yadav, S.; Otsuka, K. & David, C.C. (1992). “Segmentation in Rural Financial
Markets: The Case of Nepal”. World Development 20(3): 423-436.
Abstract: Based on a farm household survey in Nepal, this study found that farm size and
irrigation are major determinants of borrowing from formal institutions, whereas family size is the
most decisive factor in borrowing from informal sources. Formal sector borrowing per hectare of
cultivated area, however, initially increases and then decreases with farm size. Our analysis
indicates that while very small farmers tend to be excluded from the formal financial market
because of a lack of collateral, very large farmers choose to borrow less from that source because
of lower production efficiency.
Yaron, J. (1992). “Rural Finance in Developing Countries: Agricultural Policies”.
World Bank.
Abstract: This paper highlights that:
•
Agricultural credit systems justified by shortages of short- and long-term finance that have
arrested agricultural growth, delaying/preventing adoption of new production technology
and intensive nonlabor inputs;
•
Commercial lending institutions focus on large-scale farmers and ignore small-scale
farmers because of transaction costs, collateral and risk;
•
Shortage of formal credit markets has been accompanied by the persistence of informal
credit institutions, which disburse funds rapidly, and the transaction costs for borrowers
are low;
•
Specialized agricultural credit institutions have suffered from design deficiencies and
cannot function as true financial intermediaries that mobilize deposits to make loans.
The solutions include:
•
Lending groups and credit cooperatives could reduce both transaction costs and the risks
involved in lending to small farmers.
•
State or donor support should focus on institution building and development for viable
rural financial institutions.
Yaron, J. (1992). “Successful Rural Finance Institutions”. World Bank Discussion
Paper 150, Washington, D.C.
Yaron, J. (1994). “What Makes Rural Finance Institutions Successful?” World
Bank Research Observer, 9 (1): 49-70.
Abstract: Providing affordable credit to the rural population has long been a prime component of
development strategy. Governments and donors have sponsored and supported supply-led rural
finance institutions both to improve growth and equity and to neutralize or mitigate urban-biased
macroeconomic policies. But because of high risks, heavy transaction costs, and mounting loan
losses, many of the programs have drained state resources to little purpose, reaching only a small
part of the rural population and making little progress toward self-sustainability. There are,
however, a few success stories. This article reviews the policies, modes of operation, incentives,
and financial performance of four publicly sponsored programs in Asia that are widely perceived to
be successful, to find out what economic, social, and institutional factors contributed to their
success.
Yaron, J.; Benjamin, M. & Piprek, G.L. (1997). “Three Success Stories. Rural
Finance Issues, Design and Best Practices”. Environmentally and Socially
Sustainable Development Studies and Monographs, No. 14: 117-37.
Washington, D.C.: IBRD- World Bank.
Abstract: This chapter examines the management practices and modes of operation underlying the
success of three rural financial institutions (RFI). The Bank for Agriculture and Agricultural
Cooperatives (BAAC), Thailand, the Village Banks (Unit Desas BRI-UD) of Bank Rakyat
Indonesia(BRI), and the Grameen Bank (GB) in Bangladesh, have all proven successful in
achieving their core objectives of outreach and self-sustainability. Even though each of the three
institutions differs in many ways, all have consistently practiced the same basic principles. And
although BAAC, the BRI-UD, and the GB are not the only successful RFIs, there is substantial
information accessible about their particular successes. Also, all three of these institutions are
important to both the rural and national financial sectors. In examining the external factors that
contributed to the success of these three RFIs, association may be brought to the complimentary
macroeconomics conditions for which they functioned, still they each faced their own limitations
and constraints in the implementation of new policies and operating methods. And although the
53
guiding principles of these institutions should be explored, careful measures must be taken in
adapting these operations and consideration must be kept in regards to the context of each RFI’s
individual objective and clientele. A solution that is successful in one environment may not adapt
well in another.
Yaron, J.; Benjamin, M. & Piprek, G.L. (1997). “Performance Criteria for Rural
Financial Intermediation”. Rural Finance Issues, Design and Best Practices.
Washington, D.C.: IBRD- World Bank.
Abstract: Government-supported interventions in rural financial markets are often geared to
impact development by expanding incomes and reducing poverty. Because it is necessary to
ensure that goals will be achieved, interventions often involve the use of scarce public funds,
without consideration of the costs to society. With the problems associated with the methodology
with impact assessments, the proxies for development impact best evaluate the success of rural
financial institutions. The success of the RFI can be evaluated by the extent of the outreach and
self-sustainability. This paper examines the methodological problems associated with measuring
the impact of rural credit projects, and the second part develops a framework to assess rural
financial institutions.
Yaron, J.; Benjamin, M. & Piprek, G.L. (1997). “Rural Finance: Issues, Design
and Best Practices”. Washington DC: IBRD.
Abstract: Traditional and new approaches that governments have taken to rural finance are
outlined. The report outlines the traditional approach to rural finance, which relied heavily on
supply-led, state-owned agricultural credit institutions. Second, it highlights how wide-spread
urban-biased policies impeded rural development and the promotion of rural financial markets.
These policies included over-valued exchange rates, inflexible price controls on food produce,
under-investment in rural infrastructure, and protection of domestic industries against import
competition. The volume then illustrates the emerging new approach, which focuses on creating an
environment to promote viable rural financial markets. Specifically, it focuses on creating a
favourable policy environment in terms of the macroeconomy, agricultural and financial sectors,
rural development, and the legal and regulatory framework. Moving from the macroeconomic and
sectoral to the institutional level, the report offers two primary criteria, outreach and sustainability,
as the bases for assessing the performance of rural financial institutions. It reviews and analyses
the modes of operation and performance of three successful rural financial institutions: the
Grameen Bank of Bangladesh, the Bank of Agriculture and Agricultural Cooperatives (BAAC) in
Thailand, and the Bank Rakyat of Indonesia, Unit Desa (BRI-UD). The analysis illustrates the
phenomenal growth and development that these institutions underwent over the past decade.
Yaron, J.; Benjamin, M. & Charitonenko, S. (1998). “Promoting Efficient Rural
Financial Intermediation”. World Bank Research Obsserver, 13: 147-170.
Abstract: Although governments have traditionally used subsidized credit programs to promote
agricultural growth, this approach has generally failed to improve incomes and alleviate poverty in
rural areas. It has also led to the mistaken belief that rural credit programs cannot be profitable. A
new approach seeks to raise standards of living in rural areas by casting the government in a very
d role—one of setting a favorable legal andpolicy environment for rural financial markets and
addressing spec market failures cost effectively through well-designed and self-sustaining
interventions. There is evidence that this approach can be highly successful. The Village Bank
system of Bank Rakyat Indonesia has shown that financial services can be extended to millions of
low-income rural clients without relying on subsidies. Indeed, the program has generated
enormous profits for the bank by using simple, innovative, and largely replicable techniques.
Yaron, J. & Charitonenko, S. (2000). “Review of Bank Rural Finance Lending:
Projects Approved FY94 – FY99”. Washington, D.C.: World Bank Rural
Development
Department,
Environmentally
and
Socially
Sustainable
Development Vice Presidency.
Zeller, M. (1995). “The Demand for Financial Services by Rural HouseholdsConceptual Framework and Empirical Findings”. Quarterly Journal of
International Agriculture 34, no. 2: 149-70.
Abstract: The paper aims to conceptualize the relationship between food security of the rural poor
and access, or lack thereof, to financial services. The conceptual framework shows that households
54
based on the food security motive demand not only production credit, but also credit for
consumption, savings, services and insurance. Using household data from a survey in Madagascar
in 1992, a regression analysis is used to assess the effects of informal and formal credit on
household income and consumption. While most of the formal loans are used for production,
informal loans are frequently used for stabilization of consumption of food and other basic needs.
The analysis shows significant positive effects of formal and informal loans on household income.
Furthermore, informal loans significantly increase food consumption. It is concluded from this
analysis that a broader array of rural financial services in developing countries could contribute to
household food security.
Zeller, M. et al. (1996). “Rural Financial Policies For Food Security Of The Poor:
Methodologies For a Multicountry Research Project”. IFPRI FCND Discussion
Paper No. 11.
Abstract: The objective of IFPRI's multicountry research program on rural financial policies for food
security of the poor is to identify policies and institutional arrangements that help the poor
integrate themselves into sustainable savings and credit systems such that they have an increased
capacity to invest, bear risk, and smooth consumption. The focus of the research on policy and
program design and their effects on household investment and consumption requires field data
collection at the institutional and household level. This paper presents the underlying conceptual
framework and various methodological approaches that have been reviewed and tested by the
team at IFPRI and at collaborating institutions. Methodologies are presented for analysis at the
institutional level, mainly focusing on the determinants of the formation of financial institutions
and the analysis of effects of program design on institutional conduct and performance, and at the
household level, thereby addressing determinants of access to and participation in financial
markets and related effects on household welfare.
Zeller, M.; Schrieder, G.R.; Braun, J.V. & Heidhues, F. (1997). “Rural Finance for
Food Security for the Poor: Implications for Research and Policy”. IFPRI, Food
Policy Review no. 04.
Abstract: Over the past three decades, rural financial policy in developing countries has often
sought to improve access of the poor to credit through supply-oriented and subsidized credit
institutions. The lessons learned from the widespread failure of state-run rural credit programs;
the existence of thriving informal financial institutions providing credit, savings, and insurance
services to the rural poor; and recent institutional innovations in microfinance have led the authors
of this food policy review to consider the current role of public action in developing rural financial
markets. In Rural Finance for Food Security of the Poor: Implications for Research and Policy, Food
Policy Review 4, the authors take a fresh look at the role of rural financial policy in improving
household food security and alleviating poverty. They develop a conceptual framework for relating
access to financial services to food security and review empirical findings on household demand for
financial services. They explore the potentials for linking informal lenders (relatives, credit groups,
and moneylenders) with the formal financial systems (banks and cooperatives). Then they review
the constraints to development of rural financial markets and ways to circumvent these constraints
by examining innovative institutions, especially those that include participation by the poor
themselves.
Given seasonal agricultural income and a multitude of risks affecting income
generation and consumption, access to financial services can contribute to improved income
generation and consumption stabilization, thereby addressing the transitory and chronic food
insecurity of many poor households in developing countries. The objectives of this review are to
examine these potentials for improved food security, to derive implications for policy and
institutional design, and to point out future avenues of research.
Zeller, M. & Sharma, M. (1998). “Rural Finance and Poverty Alleviation”. Food
Policy Report ed. Washington, DC: International Food Policy Research Institute.
Abstract: Presents information on the credit constraints that poor rural households face, derived
from detailed rural household surveys conducted by IFPRI and its collaborators in nine countries of
Asia and Africa (Bangladesh, Cameroon, China, Egypt, Ghana, Madagascar, Malawi, Nepal, and
Pakistan). It uses this information to make the case for appropriate public intervention in
strengthening rural financial markets and draws conclusions about areas where public resources
may best be spent. It describes how informal, often indigenous institutional arrangements from
savings clubs and lending networks to small retail shops and input dealers have succeeded in
tailoring savings, credit, and insurance services to the poor. What enables informal institutions to
provide sustainable financial services that banks and cooperatives in the formal sector institutions,
with few exceptions, fail to provide? What are their strengths and weaknesses? What lessons can
formal sector institutions draw from them? The report argues that the basic problem lies in
55
institutional arrangements, summarily transplanted from urban-based formal banking systems that
have high transaction costs for lenders and borrowers alike. For the lender, these costs are
incurred in screening large numbers of borrowers, monitoring and enforcing unsecured loan
contracts, and managing tiny savings deposits. For the borrower, these costs take the form of time
and other resources spent securing loans or making deposits, or in appropriate deposit or loan
terms. Finally, the report looks at examples of recent institutional innovations that overcome some
of these obstacles. It concludes that just as there is a role for the public sector to develop or
support science based technologies, concerted public action is also needed to create an enabling
environment in which institutional innovation is encouraged and given more room to spread.
Governments, donors, banking practitioners, non governmental organizations, and research
institutions must work together closely to pinpoint the costs, benefits, and future potential of
emerging rural financial institutions.
Zeller, M. & Sharma, M. (1999). “The role of rural financial services for
improving household food security. Concept, evidence, and policy implications”.
In Overcoming world hunger: Challenges, opportunities, and strategies, ed. M.
Schulz and U. Kracht. Münster, Westfalen: Litt Verlag, pp. 531–54.
Zeller, M. & Sharma, M. (2000). “The demand for financial services by the rural
poor”. IFPRI.
Abstract: This policy brief summarizes lessons learned from IFPRI's multicountry program on rural
finance and household food security. It points out that the notion that the poor are not
creditworthy or cannot save has been laid to rest by the number of successful financial institutions
that are providing savings, credit and insurance services to poor people in developing countries. To
satisfy the demand for financial services by the poor through institutional and product innovation is
not possible without a thorough appreciation of the issue of food insecurity. For example, in poor
households the spheres of consumption, production and investment are inseparable in the sense
that consumption and nutrition are important to a household's ability to earn income. Thus
consumption loans should be regarded as working capital loans which maintain the production
factor labor. Research by IFPRI on the demand for financial services points out that product
innovation that responds to the food security motives of rural households can lead to higher
outreach and higher impact on the poor. However, policy makers also need to recognize that while
the poor are creditworthy and able to save and insure, financial institutions may still fail to cover
their costs, even with improved products
Zeller, M. (2003). “Models of Rural Financial institutions”. Lead Theme Paper at
Paving the Way Forward for Rural Finance: An International Conference on Best
Practices, Washington, D.C., June 2-4, 2003.
Abstract: This paper describes different models of rural finance institutions, and examines their
comparative advantages as well as related challenges to and strategies for deepening rural
financial systems. A greater emphasis is given to microfinance, however the paper addresses other
institutions under a rural financial systems perspective as well. This topic requires a description of
the different types of informal financial institutions and their strengths and weaknesses, and a
discussion of the objectives of rural financial policy within the broader framework of development
policy and goals, as presented in Chapter 2. Chapter 3 compares the main characteristics of rural
as opposed to urban environments. This highlights the specific constraints and issues of rural and
agricultural finance. Chapter 4 presents different models of rural financial institutions. In view of
the specific characteristics of rural areas and of agriculture, and in view of multiple policy
objectives, I seek to highlight the comparative advantages of different institutional models, and
discuss challenges to and strategies for sustainably enhancing a rural population’s access to
financial services. This paper is not about which type of institution is better or worse for a
particular target clientele in a particular operating environment. Instead, one of the major
recommendations of this paper is that there is no blueprint for rural finance. Institutional diversity
is desired to enhance competition, depth and breadth of outreach, and welfare impact. In Chapter
4 I further discuss in the transferability of existing microfinance best practices to rural and
agricultural contexts. Chapter 5 summarizes the major conclusions. What follows next is a
discussion of the motivations for a renewed interest in rural and agricultural finance.
Zhongfu, M. (2003). “The Evolution of the Rural Financial System and Policy”. in
Rural Financial Markets in China, Canberra, Australia: Asia Pacific Press, 2003,
pp. 35-45.
56
Rural credit:
Adams, D.W. & Nehman, G.I. (1979). “Borrowing Costs and the Demand for
Rural Credit”. Journal of Development Studies, 152: 165-176.
ADB. (1997). “Technical Assistance to the People’s Republic of China for the
Reform of the Rural Credit Cooperative System”. Manila: ADB. December.
ADB. (2005). “Impact Evaluation study of the Rural Credit Project in the Socialist
republic of Vietnam”.
Abstract: The Rural Credit Project (the Project) was financed by a loan of $50 million from the
Asian Development Bank (ADB). The loan was approved in 1996 and implemented from 1997 to
2002. With goals to promote economic growth, diversify the rural economy, and reduce rural
poverty, the Project aimed to improve household income, expand rural employment, and
strengthen the rural financial system through the provision of long-term funds to participating
financial institutions (PFIs), which included the AgriBank (AB)—a large state bank accounting for
92% of the formal financial market in rural Viet Nam—and people’s credit funds (PCFs), which
were then newly formed and privately owned by members. The Project is rated relevant. It was,
and still is, consistent with the development strategies of the Government and the operational
strategies of ADB at the project design and postevaluation stages. The project design correctly
identified rural households’ lack of access to formal credit as the key constraint, with the primary
cause being the PFIs’ shortage of long-term funds. Based on the problem diagnosis, the project
interventions tackled the key constraint by providing long-term credit to PFIs to channel subloans
to rural borrowers. Since AB already had an extensive retail network covering all rural areas, the
project design used the existing financial infrastructure instead of creating new institutions.
Furthermore, the design did not restrict the use of its credit line to a particular subsector or
particular regions, but intended to cover all rural areas in the country. On the downside, however,
the Project narrowly limited its subloans to those for “productive investment,” denied borrowers’
requests for loans for children’s education and for emergencies, and thereby missed the
opportunity to address these two primary causes of poverty and reversion to poverty status. The
inclusion of two “add-on” components in the Project—lending to the poor and institutional
strengthening—did not work due to a lack of client demand. The Project is rated highly effective. It
provided the intended resources to AB and PCFs, and substantially exceeded its target of
extending rural credit to 102,000 rural borrowers. Partly due to support from the Project, AB’s
clients increased from less than 3 million at appraisal to more than 9 million in 2004. As a result, it
provided services to a large number of previously “unbanked” rural residents. The quality of AB’s
services was also improved, with fast processing, good repayment rates (above 95%), small
amount of overdue loans (1.74% as of 2004), and flexibility in repayment scheduling. During the
project period, Viet Nam experienced rapid economic growth and substantial reduction in rural
poverty. While the achievements were the results of many factors, fieldwork found that rural credit
played a key role in poor households’ exit from poverty by enabling private investment in animal
raising and thereby enhancing the opportunity for self-employment by the poor and near poor. AB
and PCFs made a significant contribution to poverty reduction by making formal credit easily
available to a large number of rural residents. The Project is rated less efficient, however. It was
implemented in an economic environment in which optimal allocation of resources was precluded
by government control on interest rates. While the Project, through its design and implementation,
contributed to the removal of this policy distortion, the use of its resources was less than efficient
during the implementation period. Furthermore, the project funds were re-lent to PFIs at interest
rates below the cost of funds from other sources—both borrowing from commercial banks and
deposits from clients. The low cost of the ADB funds stimulated high demand for them and
resulted in equal distribution to all PFIs of scarce long-term funds that should have been used
exclusively for financing medium- and long-term lending to end borrowers.
Ahmed, Z.U. (1989), "Effective Costs of Rural Loans in Bangladesh". World
Development, Vol. 17, No.3, pp. 357-363.
Abstract: The paper compares transaction costs of borrowing from both formal and informal
sources in rural Bangladesh and finds that transaction costs of loans from formal lenders are
higher than those of loans from informal lenders. Transaction costs per taka of loan decrease with
loan size, but much faster for formal than for informal loans. The effective costs of loans are
calculated to show that for small loans, the effective costs of formal loans were higher than those
of informal loans, while for large loans the formal loans were cheaper than informal loans. Thus
large borrowers benefit from the subsidy in the formal credit market.
57
Alamgir, D. & Ali H. (1994). “Impact of PKSF Rural Credit Program on the
Beneficiaries-Reflection from a study of some selected organizations”. PKSF.
Abstract: It is a significant research work carried out in 1994 by Mr. Dewan Ali Haider Alamgir, the
then Assistant General Manager of PKSF, who is now working in Grameen Shakti as General
Manager. In this research work the overall scenario of microcredit operation in Bangladesh
covering, both prospects and constraints has been highlighted.
ALIDE; FAO. (1996). “Collateral in Rural Loans”.
Abstract: This paper was prepared by the Rural Finance Group of FAO in collaboration with ALIDE,
following studies of the role and importance of collateral in agricultural and rural loans in ten Latin
American countries. It was noted that collateral is vital for the growth of formal credit markets,
particularly for smallholder farmers.Different types of conventional collateral, e.g., third party
guarantee, mortgage, pledged assets, guarantee funds, are examined in terms of their legal and
economic characteristics. The scope for non-conventional collateral is also explored, e.g., solidarity
groups, blocked savings, endorsement, loan graduation, interlinked transactions. The report is
aimed at the staff of development finance institutions.
Allavi, P.; Havan, C. & Amakumar, R.R. (2002). “Micro-Credit and Rural Poverty
An Analysis of Empirical Evidence”. Economic and Political Weekly.
Abstract: This paper reviews empirical evidence on NGO-led micro-credit programmes in several
developing countries, and compares them with state-led poverty alleviation schemes in India.The
study shows that micro-credit programmes have been able to bring about a marginal improvement
in the beneficiaries’ income. However, the beneficiaries have not gained much by way of
technological improvements, given the emphasis on ‘survival skill’. Also, in Bangladesh the practice
of repayment of Grameen Bank loans by making fresh loans from moneylenders has resulted in
the creation of ‘debt cycles’.
Amin, R.; Becker, S. & Bayes, A. (1998). “NGO-Promoted Microcredit Programs
and Women’s Empowerment in Rural Bangladesh: Quantitative and Qualitative
Evidence”. The Journal of Developing Areas 32(2): 221-236.
Ammar, S. et al. (1993). “The Thai Rural Credit System and Elements of a
Theory: Public Subsidies, Private Information, and Segmented Markets”. In The
Economics of Rural Organization: Theory, Practice, and Policy, edited by K. Hoff,
Avishay Braverman, and Joseph E. Stiglitz. Oxford: Oxford University Press. p.
154-185.
Abstract: Thailand has sought to increase farmers' access to credit by government intervention. In
1966 it created a government agricultural bank to lend solely to farm households, and beginning in
the late 1970s it required commerical banks to lend heavily in the rural sector, either directly or by
making deposits in the agricultural bank. The result was an enormous expansion of credit in the
rural sector. But because formal lenders were either unable or unwilling to solve the information
problems involved in the broad range of rural credit transactions, the informal credit sector (which
charged interest rates many times higher than the formal sector) continued to thrive. Using
household surveys and surveys of moneylenders, this article provides a detailed analysis of the
ways in which lenders in the informal sector have solved the information problems of providing
credit. The authors argue that the informal sector in competitive, and that high interest rates
reflect high information costs, not the scarcity of funds.
Anderson, J. (1990). “Does regulation improve small farmers' access to Brazilian
rural credit?” Journal of Development Economics, Volume 33, Issue 1, July
1990, Pages 67-87.
Abstract: Brazilian policymakers attempted to counter the inherent tendency for concentration in
subsidized rural credit programs by requiring banks to lend a specified volume to small farmers.
Inferences about the regulation's success are drawn from farm-level, panel data from São Paulo in
the early 1980s. Membership in the target group should have a positive effect in an ‘access rule’,
relating farmers' characteristics to their probability of receiving credit. When allowing for timeinvariant individual effects, possibly correlated with target group indicators, tests indicate that the
58
regulation had no effect. Subsidiary results cast doubt on the efficacy of a broader set of
regulations.
Barkema, A.D. & Drabenstott, M. (2000). “Rural Credit Markets of the Future:
Obstacles and Opportunities”. Agricultural Outlook Forum 2002.Kansas City,
USA: Center for the Study of Rural America.
Abstract: Rural America’s challenges are both numerous and widely diverse. Many rural
communities struggle to maintain their fundamental physical and social infrastructure including
roads, utilities, and educational and health services. Another new and critical infrastructure
challenge for many rural communities is connecting to the new digital economy. In many rural
areas, paying for these important services will require new engines of growth, beyond the
traditional locomotives of agriculture and energy. Regardless of how America responds to these
challenges, access to capital via credit market will remain vitally important. The unevenness of the
rural economy presents many communities with serious challenges in the period. Five challenges
appear particularly important: closing the digital divide, growing new entrepreneurs, leveraging
the new agriculture, sustaining the rural environment, and boosting human capital. Community
banks will almost certainly remain dominant rural business lenders in the period ahead, especially
given the new tools they received in the FSMA. And while technology will clearly change the
banking business, most rural community banks will remain heavily tied to their communities
through a legacy of business relationship. The simple relationship still holds: as go their
communities, so go community banks.
Barua, B.K. & Dasgupta, S.K. (1996). “Rural credit delivery system for poverty
alleviation”, BARD, Comilla.
Bastiansen, J. & D'Exelle, B. (2002). “To Pay or Not to Pay: Local Institutional
Difference and the Viability of Rural Credit in Nicaragua”. Journal of
Microfinance. Vol, 4; No.2.
Abstract: Innovative credit enterprises, aiming to expand the frontier of the rural credit market,
can attain financial sustainability and broadened social outreach if they embed financial operations
in local institutions, such as social networks and prevailing rules. Only in this way can the "rules of
the game" imposed by the credit enterprise gain the local legitimacy that is necessary to reduce
transaction costs sufficiently. The nature of preexisting local institutional environments, therefore,
has a profound effect on the performance of credit enterprises. Our analysis of a rural microcredit
program in two neighboring villages in Nicaragua indicates that existing patron-client structures,
conditioned by Sandinista agrarian reform and the harshness of agro-ecological conditions, had a
negative effect on the local acceptance of strict repayment rules. This analysis suggests that the
evaluation of credit enterprise performance should take into account differences in local
institutional environments and that efforts should be made to fine-tune standard financial
technology to more adverse institutional conditions. If not, the microfinance industry may tend to
exclude more difficult and poorer rural areas.
Basu, S. (1997). “Why Institutional Credit Agencies are Reluctant to Lend to the
Rural Poor: A Theoretical Analysis of the Indian Rural Credit Market”. World
Development 25, no. 2: 267-80.
Abstract: This paper examines why institutional credit facilities remain unable to extend credit to
the rural poor. Analysis indicates that poor peasants at best can offer an entitlement set as a
mortgage, comprised only of future shares of their harvest, which itself is subject to risk.
Consequently, lenders cannot advance loans without risking extensive loss of loanable funds. As
landlords’ income is subject to the same risk as that of peasants, they advance loans to ensure
that their own income is not affected by the peasants’ financial situation. An extension of
institutional credit to peasants results only in subsidization of landlords.
Bell, C. (1988). "Credit Markets and Interlinked Transactions". in Handbook for
Development Economics Vol I, H. Cherney and T. N. Srinivasan (eds.) Elsevier
Science Publishers.
Berger, Marguerite. (1989), "Giving Women Credit: The Strengths and
Limitations of Credit as a Tool for Alleviating Poverty" World Development,
Volume 17, Number 7, pp. 1017-1032.
59
Besley, T. (1994). “How do market failures justify interventions in rural credit
markets?” World Bank Research Observer, vol 9, no 1, January.
Abstract: Understanding of the economic causes and consequences of market failure in credit
markets has progressed a great deal in recent years. This article draws on these developments to
appraise the case for government intervention in rural financial markets in developing countries
and to discover whether the theoretical findings can be used to identify directives for policy. Before
debating the when and how of intervention, the article defines market failure, emphasizing the
need to consider the full array of constraints that combine to make a market work imperfectly. The
various reasons for market failure are discussed and set in the context in which credit markets
function in developing countries. The article then looks at recurrent problems that may be cited as
failures of the market justifying intervention. Among these problems are enforcement; imperfect
information, especially adverse selection and moral hazard; the risk of bank runs; and the need for
safeguards against the monopoly power of some lenders. The review concludes with a discussion
of interventions, focusing on the learning process that must take place for financial markets to
operate effectively.
Bhaduri, A. (1982). “The role of rural credit in agrarian reform with special
reference to India”. Economic Bulletin for Asia and the Pacific, 33, pages 104-11.
Bhatt, V.V. (1988). “On financial innovations and credit market evolution”. World
Development, Volume 16, Issue 2, February 1988, Pages 281-292.
Abstract: This paper examines the role of financial innovations in the economic development
process. It discusses the place of policy intervention in the financial development of developing
countries and, through a case study of an innovative bank, illustrates the nature and
characteristics of the financial innovations necessary for financing small enterprises and mobilizing
resources from low-and-middle-income groups. Such financial innovations are shown to reduce
transaction costs and risk and as a result to bring about widening, deeping and intergration of
capital markets. This process accelerates economic development through a favorable impact on
savings, investment and output.
Bhattacharyya, S. (2005). "Interest rates, collateral and (de-)interlinkage: a
micro-study of rural credit in West Bengal". Cambridge Journal of Economics,
Vol. 29, Issue 3, pp. 439-462.
Abstract: This study, based on a primary field survey in rural West Bengal, analyses the terms and
conditions of the differentiated structure of rural credit with the advent of capitalist agriculture
within the interventionist state. The sample households are classified according to the economic
classes of Patnaik as well as the standard acreage criterion. The possibility of interlinkage between
credit and all other structures is remote. The average rate of interest is inversely related to
ascending class status. There is a systematic association between rate of interest and the value of
collateral on the one hand, and marketability of collateral and interest rates on the other.
Bhende, M.J. (1986). "Credit Markets in Rural South India". Economic and
Political Weekly, Vol. XXI, Nos. 38 and 39, September 20-27, pp. A: 119-A: 124.
Binswanger, H.P. (1986). "Risk Aversion, Collateral Requirements, and the
Markets for Credit and Insurance in Rural Areas", in P. Hazell, C. Pomareda and
A. Valdes, (eds.), Crop Insurance for Agricultural Development: Issues and
Experience, Baltimore and London, The Johns Hopkins University Press: 67-86.
Boucher, S. & Guirkinger, C. (2005). “Risk, Wealth and Sectoral Choice in Rural
Credit Markets”. Department of Agricultural and Resource Economics University
of California, Davis.
Abstract: We develop a model, which suggests a re-evaluation of the role of the informal credit
sector in developing countries. The informational advantage of informal lenders is portrayed as the
ability to monitor borrowers. Monitoring reduces the incentive problem and allows for contracts
with lower collateral. This enables informal lenders to serve two types of clients: 1) Those who
cannot post the collateral required by the formal sector; and 2) Those who are able but do not
want to post collateral. The model is thus consistent with the conventional view of the informal
60
sector as recipient of spillover demand (quantity rationed) from the formal sector. It also
demonstrates an additional role of the informal sector - namely as provider of insurance as the
lower collateral requirement implies greater consumption smoothing across states of nature.
Braverman, A. & Guasch, J.L. (1986), "Rural Credit markets and Institutions in
Developing Countries: Lessons for Policy Analysis from Practice and Modern
Theory". World Development, Vol. 14, No.10/11, pp. 1253-1267.
Abstract: We present the evidence of government intervention in rural credit markets of LDCs in
the past three decades and confront it with modern theory. That evidence shows a significant
failure of subsidized credit programs either to achieve an increase of agricultural output costeffectively or to improve rural income distribution and alleviate poverty. In addition, many of the
financial institutions that were created to channel rural credit have been shown to be inept and
lacking accountability. Modern theory has focused mostly on two areas, credit rationing in
competitive markets and interlinking of credit contracts with labor and land contracts. We outline
the policy implications of these theories and find them insufficient to account for the empirical
evidence. We contend that a more systematic and rigorous analysis of institutions and institutional
environments is essential for understanding and implementing effective policy reforms of rural
credit markets. We present suggestions for undertaking such an analysis.
Braverman, A. & Gausch, J.L. (1989). “Rural Credit in LDCs: Issues and
Evidence”, Journal of Economic Development (Korea), issue 14(June), pp. 7-34.
Braverman, A. & Guasch, J.L. (1993). “Administrative Failures in Rural Credit
Programs”. In The Economics of Rural Organisations, edited by Hoff, K., A.
Bravermann and J. Stiglitz, Oxford University Press: New York
Brett, N. (2004). “Review of IFAD Experience with Rural Credit in Bangladesh”,
pp.71-90, in Ahmed, S. and M. A. Hakim (eds.) “Attacking Poverty with
Microcredit”, The University Press Limited, Dhaka.
Abstract: This paper describes IFAD's (the International Fund for Agricultural Development) policy
and approach to rural credit, its experiences in Bangladesh and the impact of a series of recent
projects. The paper outlines the performance of credit operations in these projects. Finally, some
of the challenges for future projects are described.
Caselli, F. (1997). “Rural labor and credit markets”. Journal of Development
Economics, Volume 54, Issue 2, December 1997, Pages 235-260.
Abstract: This paper studies changes over time in the incidence of labor tying. The existing
literature is successful in explaining the emergence of this institution, but contains the
counterfactual implication that there should be an increasing trend in labor tying. However,
previous contributions have so far implicitly assumed that there are no consumption-credit
markets available to workers. I show that taking account of borrowing opportunities leads to new
predictions about the evolution of permanent labor. In particular, declines in borrowing costs
associated to efficiency gains in the financial sector lead to a fall in the fraction of rural workers
who are tied. In addition, if consumption-credit markets are operating, a fall in the size of the rural
population will cause, under certain conditions, a decline in the percentage of permanent workers.
These predictions are consistent with the observed trends in developing countries. Hence, this
paper complements previous theoretical work on labor tying: with its addition, the theory now
explains the emergence, persistence and final demise of this institution.
Cheng, E. & Malcolm, L.R. (1995). “Provision of Institutional Credit and
Economic Transition in Rural China”. Working Paper. Chinese Economies
Research Centre. Adelaide: University of Adelaide.
Cheng, E.; Findley, C. & Watson, A. (1997). “We are Not Financial
Organizations: Financial Innovation without Regulation in China’s Rural Credit
Foundations”. Working paper. Chinese Economies Research Centre. Adelaide:
University of Adelaide.
61
Cheng, E. & Xu, Z. (2004). “Rates of Interest, Credit Supply and China’s Rural
Development”. Savings and Development, Issue no. 2, 2004.
Abstract: By analyzing the data on the supply of rural credit, we find that official statistics have
overstated the supply of institutional credit in rural China, as the supply of institutional credit as a
proportion of rural deposits in China has actually plummeted after 1996. The decline in the supply
of rural credit has impacted negatively on China’s rural economic development, particularly on offfarm production undertaken by rural enterprises, the engine of China’s rural economic growth
since the economic reforms in the late 1970s and early 1980s. Using the findings from field
investigations in China, we argue that the current official lending rate of interest is unsustainable
and that state regulation of interest rates and consequential market distortions have contributed to
the ever-growing numbers of non-performing loans and financial losses of rural financial
institutions, and hence to the decline in the supply of rural credit. The paper concludes that the
official restriction on the rates of interest should be removed and the borrowing costs to farmers
and rural enterprises should be reduced. Moreover, the interest rate liberalization should be
accompanied by macroeconomic stability and adequate prudential supervision and regulation of
the banks.
Cheston, S. & Reed, L. “Measuring Transformation: Assessing and Improving the
Impact of Microcredit”. Washington, D.C.: Microcredit Summit Campaign, 1999.
Abstract: This paper explores impact monitoring from the practitioners' perspective. It examines
how managers can use impact assessment and monitoring as essential tools for decision-making
and organisational learning. It draws from the Christian Enterprise Trust of Zambia (CETZAM)
which has worked closely with its primary donor, the British Department for International
Development (DFID), to develop a system that is well integrated into its regular operations
The paper posits that other practitioners can learn from CETZAM's experience consider how to use
impact assessment and monitoring as an essential management tool in better serving clients,
staying competitive and fulfilling their mission to reduce poverty. The paper challenges
practitioners to take the lead and develop impact assessment and monitoring systems that use
internal feedback loops to integrate field knowledge into management decision-making. It
concludes that CETZAM's experience demonstrates that impact monitoring provides good
information to support good decision-making.
Chowdhury, A.M.R.; Mahmood, M. & Abed, F.H. (1991). “Credit for the rural
poor in Bangladesh”. Small Enterprise Development 2(3) 4-13.
Abstract: As the rural population of Bangladesh increases, landlessness among people once
dependent upon agriculture is a growing problem. The Bangladesh Rural Advancement Committee
(BRAC) has been working with the rural poor since 1972, and in 1979 it began to provide credit via
its 81 branches through the Rural Development Programme (RDP). Ten years later the success of
the RDP in generating incomes and employment through small businesses and building up assets
has been evaluated, and this article describes the results of the evaluation.
Conning, J. (2000), “Of Pirates and Moneylenders: Contracts and Competition in
a Rural Credit Market in Chile”. "Industrial Organization and the Food Processing
Industry", Toulouse, France, June 22-23, 2000.
Abstract: Economic liberalization and an export boom brought increased competition and new
intermediaries and contract forms to the market for rural finance in Chile. Monitored and tiedcredit
from export and agro-industry contract farming firms became a dominant mode of finance.
Existing theoretical interpretations suggest that interlinked contracts serve as collateral substitutes
and hence should benefit small farmers. Yet most new interlinked finance in Chile was aimed at
better-capitalized medium and large commercial farmers and existing, more traditional forms of
tied credit for small farmers from informal trader-moneylenders actually became less common
during this period. This apparent puzzle is explained using insights both from a theoretical model
and field case study observations. The model highlights the interaction between the problem of exante moral hazard in the use of borrowed funds and the problem of post-harvest costly state
verification. I argue that informal trader-moneylenders were forced to reduce tied-credit to small
farmers following liberalization because increased product market competition in certain crops
exacerbated the problem of 'pirates sales'' or post-harvest opportunistic default. This only
restricted the already narrow set of enforceable claims upon which interlinked and monitored
credit contracts for collateral-poor borrowers could have been fashioned. The problem was avoided
62
in the emergent export sector because product markets are more concentrated and because
legally enforceable crop liens were easier to establish with medium and larger farmers.
Copestake, J.; Bhalotra, S. & Johnson, S. (2001). “Assessing the impact of
microcredit: A Zambian case study”. Journal of Development Studies 37 No. 4:
81-100.
Abstract: Expectations are high, but evidence of the impact of microcredit remains in short supply.
This article estimates the impact of an urban credit programme in Zambia on business
performance and on a range of indicators of wellbeing. Borrowers who obtained a second loan
experienced significantly higher average growth in business profits and household income.
Inflexible group enforcement of loan obligations resulted in some borrowers, especially amongst
those who had taken only one loan, being made worse off. Our methodological investigations
suggest that the supply of rigorous impact studies can be increased by basing them on data
collection that serves a wider range of purposes, including market research.
Copestake, J. (2002) “Inequality and the Polarizing Impact of Microcredit:
Evidence from Zambia’s Copperbelt”. Journal of International Development 14:
743-755.
Abstract: While much research has addressed the impact of microcredit on poverty, less attention
has been paid to inequality. This paper draws on research on the Zambian Copperbelt to show how
impact on income distribution depends upon who obtains loans, who graduates to larger loans,
who exits and group dynamics. Some initial levelling up of business income was found, but the
more marked overall effect among borrowers was of income polarisation. To gain a full picture,
more research is needed into the wider impact of the big gainers not only on their competitors,
customers and employees, but also on political tolerance of inequality.
Datta, D. (2004). “Microcredit in Rural Bangladesh: Is It Reaching the Poorest?”
Journal of Microfinance, Vol 6, No.1.
Abstract: During the last decade microcredit has exploded in Bangladesh, as well as in a large part
of the third world. Empirical studies give strong evidence that microcredit has had positive effects
on two vital areas of national development; namely, the alleviation of poverty and the
empowerment of women. Despite these positive impacts, some critics question the efficacy of
microcredit in reaching the extreme poor. Some argue that while microcredit has contributed
positively to the well-being of the poor in general, it has failed to reach the poorest of the poor.
This paper explores the reasons why microcredit programs rarely reach the poorest of the poor in
rural Bangladesh. The reasons have been divided into five categories: (1) supply, (2) demand, (3)
NGDOs’ norms and social issues, (4) voluntary and involuntary dropouts, and (5) sustainable
financial services. This paper also argues that microcredit alone is not necessarily the best way to
help the poorest of the poor.
Diagne, A. (1998). “Impact of Access to Credit on Income and Food Security in
Malawi”. IFPRI FCND Paper No. 46.
Abstract: The paper departs from the standard practice that takes the estimated marginal effects
of either the amount of credit received or membership in a credit program as measures of the
impact of access to credit on household welfare. The marginal effects of the formal credit limit
variable on household welfare, controlling for the credit limit from informal sources as well as the
credit demanded from both sources, measure the marginal effects of access to formal credit. The
main finding of the paper is that access to formal credit, by enabling households to reduce their
borrowing from informal sources, has marginally beneficial effects on household annual income.
However, these effects are very small and do not cause any significant difference between the per
capita incomes, food security, and nutritional status of credit program members and noncurrent
members. Moreover, the beneficial substitution effect reflects only the fact that reduced borrowing
from informal sources makes informal loans play a lesser role in the negative impact that
borrowing (from formal or informal sources) has on net crop incomes. The marginal effects on
household farm and nonfarm incomes resulting from mere access to formal credit (without
necessarily borrowing) are positive and quite sizable, but not statistically significant. Land scarcity
and unfavorable terms of trade for the smallholders’ farm products remain by far the factors that
most constrain per capita household income growth in Malawi. The paper concludes that the
necessary complementary resources and economic environment are not yet in place for access to
formal credit to realize its full benefits for Malawi’s rural population.
63
Diagne, A. (2000). “Design and Sustainability Issues of Rural Credit and Savings
Programs: Findings from Malawi.” Rural Financial Policies for Food Security of
the Poor. Policy Brief No. 12.
Abstract: Joint liability group lending is currently the lending technology of choice of microfinance
institutions because of the success of the Grameen Bank, which is using the technology to
successfully lend to millions of poor Bangladeshi women. It is widely believed that the incentives
for peer-selection, peermonitoring, and peer pressure resulting from the joint liability clause are
responsible for the high repayment rates of the Grameen Bank and other similar microfinance
institutions. The analysis and findings presented in this brief are the results of research undertaken
by the International Food Policy Research Institute (IFPRI) and Bunda College of Agriculture on the
practice and performance of joint liability group lending in Malawi. This research provides evidence
on the extent to which peer selection, peer monitoring, and peer pressure are taking place in the
credit groups affiliated to the Malawi Rural Finance Company (MRFC), the main microfinance
institution in Malawi, and their impact on the joint liability on loan repayment. The empirical
findings of the study contrast with the conventional wisdom and assumptions regarding the
informational advantage of the joint liability and its implications for incentives for peer selection,
peer monitoring, peer pressure, and loan repayment. In particular, the findings do not support the
widely held presumption that joint liability is responsible for the high repayment rates of the
successful group lending programs. In fact, the study finds a negative impact of the joint liability
clause on the repayment outcomes of MRFC credit groups. The main findings and policy
implications of the report are summarized below.
Diagne, A.; Zeller, M. & Sharma, M. (2000). “Empirical Measurements of
Household's Access to Credit and Credit Constraints in Developing Countries:
Methodological Issues and Evidence”. IFPRI, FCND Paper no. 90.
Abstract: This paper presents a new methodological framework for measuring the level of
household access to credit. It provides an analytical framework for examining the determinants of
household credit limits and derives implications on information needed to examine the extent to
which households are credit constrained. Empirical application of this method involves directly
eliciting credit limit information in household surveys. Illustrations are provided using data from
Bangladesh and Malawi.
Dreze, J.; Lanjouw, P. & Sharma, N. (1997). “Credit in Rural India: A Case
Study”. The Development Economics Research Programme. Working paper.
London: London School of Economics.
Abstract: This paper presents a case study of credit transactions in Palanpur, a north Indian
village. Drawing on detailed informtion from all borrowers and lenders in the village, we examine a
number of issues related to the functioning of rural credit markets. These include the segmentation
of the credit market, the achievements and failure of public lending institutions, the role of
interest-free lending, the lending strategies of village moneylenders, social inequalities in access to
credit, and the politics of rural credit, among others. An attempt is also made to relate these
findings to those of other studies of credit in rural India.
Errunza, V.R. et al. (1981). “Rural credit: A micro synthesis of the Salvadorean
Experience”. Journal of Development Economics, Volume 8, Issue 2, April
1981, Pages 227-239.
Abstract: Discriminant analysis is applied to distinguish non-defaulted and defaulted loans in a
practical context at the Agricultural and Cattle development bank in El Salvador. The results
suggest that implementation of such a model will reduce administration costs and lower default
rates.
Evans, D.B. (1986). “The credit market and rural development : A model of a
Land Resettlement Scheme”. Journal of Development Economics, Volume 24,
Issue 2, December 1986, Pages 317-329.
Abstract: Many markets in developing countries are imperfect, and governments often attmept to
eliminate imperfections. The policy implications of completing an incomplete market have not,
however, been considered theoretically in the literature. This paper fills the gap, using a model of
64
the credit market in a land resettlement scheme. The major conclusion contradicts a common
assumption of the credit rural literature, namely that freely available credit will achieve
development objectives. Opening the credit market will contribute to broad objectives such as
increasing the options available to settlers, but it will not necessarily achieve narrower objectives
such as raising the output of a particular crop.
Feder, G. (1990). “The Credit Market in Rural China”. Working Paper. Stanford:
Stanford University.
Fleisig, H.W. & De la Peña, N. (1996). “Creating a Legal and Regulatory
Framework to Promote Access to Rural Credit,” Center for the Economic Analysis
of Law, Washington, DC.
Gaiha, R. (2002). “Microcredit and the rural poor: a review of the Maharashtra
rural credit project”. Journal of Microfinance 3:2.
Abstract: An attempt is made to review Maharashtra Rural Credit Project (MRCP)-a microcredit
scheme-by focusing on the process of implementation and implications of targeting, empowerment
of women, and trade off between the coverage of the poorest and sustainability of this scheme.
Attention is drawn to the deficiencies in the design and implementation of this scheme that limit
the participation of the poorest and the benefits accruing them. Moreover, it is argued that there is
a risk of overstating the trade-off between the coverage of the poorest and sustainability of the
MRCP if these deficiencies are over-looked.
Gine, X. (2005). "Access to Capital in Rural Thailand: An Estimated Model of
Formal versus Informal Credit". World Bank Policy Research Working Paper No.
3502.
Abstract: The aim of this paper is to understand the mechanism underlying access to credit. Gine
focuses on two important aspects of rural credit markets in Thailand. First, moneylenders and
other informal lenders coexist with formal lending institutions such as government or commercial
banks, and more recently, micro-lending institutions. Second, potential borrowers presumably face
sizable transaction costs obtaining external credit. The author develops and estimates a model
based on limited enforcement and transaction costs that provides a unified view of those facts. The
results show that the limited ability of banks to enforce contracts, more than transaction costs, is
crucial in understanding the observed diversity of lenders.
Goetz, A. & Gupta, R. (1996). “Who takes the credit? Gender, power and control
over loan use in rural credit programs in Bangladesh”. World Development, 24,
no. 1: 45-63.
Abstract: Explores special credit programmes in Bangladesh from a gender perspective. States
that credit institutions have dramatically increased the credit available to poor rural women since
the mid-1980s. However, though they are intended to contribute to women’s empowerment, few
evaluations of loan use investigate whether women actually control this credit. Considers whether
women’s continued high demand for loans and their manifest high propensity to repay is often
taken as a proxy indicator for control and empowerment. This assumption is challenged by
exploring variations in the degree to which women borrowers control their loans directly, using
recent research findings which reveals that a significant proportion of women’s loans are controlled
by male relatives. Concludes that a preoccupation with “credit performance” (measured primarily
in terms of high repayment rate) affects the incentives of fieldworkers dispensing and recovering
credit and may out-weigh concerns to ensure that women develop meaningful control over their
investment activities.
Hannan, M. (1996). “Rural Credit: An Assessment of Sources and Types
Available in Bangladesh”.
Post-Harvest Fisheries Project, Bangladesh.
Department for International Development.
Abstract: This paper is based on a study sponsored by DFID-Post Harvest Fisheries Project and
carried out in 1996. Its objective was to identify and record the sources of credit for the rural poor
in Bangladesh. Institutions that provide facilities other than credit have also been mentioned in the
paper. The paper discusses the policies, programmes, performance, strengths and weaknesses of
65
four types of credit institutions in Bangladesh, i.e., banks, semi-Government organizations,
Government organizations and Non-Government organizations.
Hashemi, S.M.; Schuler, S.S., & Riley, A.P. (1996). “Rural Credit Programs and
Women's Empowerment in Bangladesh.” World Development 24 No.4: 635-653.
Abstract: This paper presents findings from a study of Grameen Bank and the Bangladesh Rural
Advancement Committee (BRAC), two programs that provide credit to poor rural women in
Bangladesh. The programs were found to have significant effects on eight different dimensions of
women's empowerment. The authors use a combination of sample survey and case study data to
argue that the success of Grameen Bank, is particular, in empowering women is due both to its
strong, central focus on credit, and its skillful use of rules and rituals to make the loan program
function.
Hossain, M. (1998) “Credit for the Alleviation of Rural Poverty: The Grameen
Bank in Bangladesh” Research Report No. 65, IFPRI, Washington D.C.
Jain, P.S. (1995), "Managing Credit for the Rural Poor: Lessons from the
Grameen Bank". World Development Vol. 24, No. 1, January.
Abstract: This paper, based on a detailed study of the Grameen Bank in Bangladesh, suggests that
the credit policies of the Bank do not constitute a sufficient explanation for the Bank's success, and
that its acclaimed policy of replacing individual collateral with group guarantee is in fact not
practiced. The paper presents an alternate explanation for the success of the Grameen Bank. In
addition, it explains how the Grameen Bank has been able to overcome typical problems of
implementing development programs by sustaining good performance from its large work force,
and keeping to a minimum the tendency of a few target beneficiaries to corner program benefits
and flout organizational norms for their personal benefit.
Jackelen, H.R. & Rhyne, E. (1991). “Towards a more market-oriented approach
to credit and savings for the poor”. Small Enterprise Development, Volume
2, Number 4, December 1991, pp. 4-20(17).
Abstract: Over the last decade a number of similar initiatives to provide credit and savings to the
poor have been evolving which treat the poor as commercial clients rather than 'beneficiaries'.
These initiatives are proving in a variety of cultural settings that the poor are able to save and to
repay loans made at unsubsidized rates of interest. This article argues that credit and savings
services for the poor are provided on a scale appropriate to the market (loans and savings services
in the range of $15-$1,000) on a sustainable basis (high recoveries, high mobilization of savings
on a break-even or profitable basis), then the clients themselves have proven that the service is
justified. A distinctive and universal characteristic of these programmes, however, is that it may
take some years of operation before these programmes achieve a critical mass of operations which
allows them to be self-sustaining financial entities. This is where donor and government support
can play a critical promotional role. Finally, this paper suggests that if the early indications of
success throughout the world continue, with appropriate support from donors and governments, it
is conceivable that hundreds of millions of clients could be benefiting from these services by the
end of the decade.
Kabeer, N. (1998). “Credit where credit's due: can't micro-loans do more for
India's poor?” UK: UK DFID.
Abstract: Have micro-credit programmes succeeded in meeting the needs of the poor? Are nongovernmental organizations (NGOs) such as aid charities or private credit unions, better than
governments at reducing poverty by bankrolling grassroots enterprise? Though poor people tend
to trust official schemes less, both types of credit programme in India have shown a tendency to
overlook poor people's needs by failing to recognize how complex and variable a handicap poverty
can be, especially for women. Analyzing how these schemes are designed and delivered, with a
spotlight on how they define or profile poverty can learn a wealth of policy lessons.
Kabeer, N. (2001). “Conflicts over Credit: Re-Evaluating the Empowerment
Potential of Loans to Women in Rural Bangladesh”. World Development, Vol. 29,
No. 1, January.
Abstract: This paper explores the reasons why recent evaluations of the empowerment potential of
credit programs for rural women in Bangladesh have arrived at very conflicting conclusions.
66
Although these evaluations use somewhat different methodologies and have been carried out at
different points of time, the paper argues that the primary source of the conflict lies in the very
different understandings of intrahousehold power relations which these studies draw on. It
supports this argument through a comparative analysis with the findings of a participatory
evaluation of a rather different credit program in Bangladesh in which the impact of loans was
evaluated by women loanees themselves.
Kannapiran, C. (1994). “Sustainable Rural Credit for Agricultural Development in
PNG”. Papua New Guinea Journal of Agriculture, Forestry and Fisheries 37, no.
1: 104-16.
Abstract: Viable rural finance services ensure that credit is accessible at market determined rates.
Market failures, agricultural sector failures, structural weakness of farming, inappropriate and high
cost delivery system, and non-availability of infrastructure and support services can affect the
sustainability of rural financial systems. Possible policy options to address these problems include
regulation of credit operations in the short to medium term, low cost institutional credit, rural
savings mobilization, insurance and credit guarantee schemes, land reforms, and improved
infrastructure and support services.
Karmakar, K.G. (1999). “Rural Credit and Self-Help Groups: Micro-finance needs
and concepts in India”. London, England: Sage Publications.
Abstract: The book reviews the existing rural credit system in India, analyses its strengths and
weaknesses, and prescribes various strategies and innovations which will enable the existing credit
delivery system to emerge stronger and more viable. In the first section the book reviews the
problems and prospects for rural credit in the context of its ascribed role in rural development;
traces the evolution and growth of the rural credit delivery system; analyses the problems
associated with credit recycling and overdues; and discusses the recommendations of various
committees. In part II, the book discusses the microfinance needs of various groups including
tribals, the rural non-farm sector, rural women and micro-finance entrepreneurs. Part III focuses
on the concept and functions of self-help groups with special reference to the BAAC system in
Thailand and the Grameen Bank in Bangladesh. It is argued that these initiatives need to be
replicated far and wide in order to ensure that the rural poor do not remain marginalized forever.
The concluding section outlines strategies for developing a sustainable rural credit delivery system
in developing countries.
Khan, R.A.R. (1992). “Role of Credit in Enhancing Productivity and Employment
in Rural Sector”. Journal of Rural Development and Administration 23, no. 4:
103-10.
Abstract: The objectives of rural finance provided by banks are to bring about improvement in the
economic status of the rural poor, a good rate of repayment to the banks and increasing saving
potential for further growth. In developing countries, the majority of the population depend on
agriculture and rural activities, and is comprised of a large number of small farmers. There are few
borrowers from the rural areas who can make good use of credit and derive benefits from it,
because of their low level of literacy, consumption needs, poor access to various services and lack
of marketing skills. They are often tempted to sell their assets due to urgent needs. Some credit
requirements are given. Pakistan's economy relies on agriculture for 45% of its exports. However,
employment possibilities in the rural areas are decreasing, particularly with seasonality. Credit is
one of the inputs that can be used to achieve the objectives of agricultural development, although
credit alone cannot act as the prime mover. The factors which impede productivity growth, coupled
with the problems of unemployment and low labour productivity in Pakistan, are discussed. Banks
and financial institutions have to provide finance by mobilizing local resources to transfer savings
for investment, or the public sector needs to mobilize agricultural surpluses by fiscal and
commercial policies to invest in both the agricultural and non-agricultural sectors.
Khandker, S.R. (1998). “Fighting Poverty with Microcredit: Experience in
Bangladesh”. Washington, D.C.: The World Bank.
Kilkenny, M. & Jolly, R.W. (2006). "Are Rural Credit Markets Competitive? Is
There Room for Competition in Rural Credit Markets?" Staff General Research
Papers 12634, Iowa State University, Department of Economics.
Abstract: Talk to a country banker these days and the first subject will likely be competition—
cherry picking by the Farm Credit System, sneaky tax-free credit unions, captive finance
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companies hawking credit as a loss leader, investment houses siphoning off deposits, and so on.
It’s a long list and an old refrain. But it reveals an important question: How hot is the competition
in rural credit markets? If it’s not hot enough, we could expect credit rationing that limits economic
growth. If it is too hot, there is a risk of declining credit quality and failure of financial institutions,
which would also limit growth. Our interest in this topic is motivated, to some extent, by the
recent bid by Rabobank into the Western Corn Belt. That event suggested that profit opportunities
might exist in rural credit markets. But there is a broader issue as well. Rural credit markets are
often fraught with inefficiencies. Remoteness—frequently in association with poorly defined
property rights, rule of law, and poverty— can make it difficult to extend credit to rural
households, farms, or firms. This problem is widespread in developing and transitional economies.
And, historically, it has been a problem in rural areas in the United States—one that has been
dealt with by creating unique rural lending institutions, public policies, and other interventions. In
this paper we attempt to take the temperature of the competitive forces in rural credit markets in
12 midwestern states. A recent review by economists at the USDA’s Economic Research Service
pointed out that the average rate of return on rural-headquartered bank assets has been
systematically higher than the return on urban bank assets. The review presented a number of
indicators suggesting that rural credit markets may be less than perfectly competitive. Rural banks
charge higher interest rates on loans, pay lower interest rates on deposits, and take fewer risks.
Kochar, A. (1997) “An empirical investigation of rationing constraints in rural
credit markets in India”. Journal of Development Economics, Volume 53, Issue
2, August 1997, Pages 339-371.
Abstract: The literature on rural credit markets has generally assumed that households are
rationed in their access to subsidized ‘formal’ credit. The validity of this assumption depends on
the level of effective demand for formal credit, in turn a function of the demand for credit and its
availability from ‘informal’ sources. This paper estimates the demand and the sector-specific costs
of credit, and hence the extent of formal sector rationing, through an analysis of household
participation in both the formal and the informal credit sectors. The results show that the extent of
rationing is considerably less than what is conventionally assumed.
Kumar, A. (2004). "Reducing Default Rate in Rural Credit: How Effective is
Enhanced Supervision Approach for Formal Financial Institutions?"
Abstract: Formal financial institutions viz. commercial banks are gradually shifting their priorities
from rural credit due to many practical reasons. High default rate and non-viability of rural credit,
and increasing pressure on these formal financial institutions, to be more profitable, are few of the
basic reasons. This paper focuses on one probable approach of default mitigation, that is,
enhanced recovery effort, lack of which is one of the potential reasons for high default rate in rural
sector. The paper models a specific type of interaction between the regulatory and the institution
and concludes that in a regulated competitive environment the institutions will not tend to increase
effort for higher recovery of delivered credit unless the regulatory intervenes and directs the
institutions to do so. Even after such intervention from the regulatory, the institutions will find it
optimal to invest less in additional recovery effort in rural sector if rate of return is higher or the
default rate is lower in alternative sectors of investment.
Kumar, A. (2004). "Declining Trend in Rural Credit Delivery in India: A Trend
Break Analysis of Univariate Series".
Abstract: The basic analysis in this paper is to test Perron (1989) hypothesis on trend break in
univariate series. This paper applies Perron's procedure to the data on rural credit delivery in India
and concludes that the hypothesis, which states that most of the macro-economic time series,
initially exhibiting unit root process, become trend-stationary if one allow one time trend break in
it at some suitable time, does not hold good with this series. Instead, the paper concludes that the
unit root in the data persists even after allowing one time trend break, despite the fact that the
trend break was found to be statistically significant.
Latif, M.A.; Khandker, S.R. & Khan, Z.H. (eds.), (1996). “Credit Program for the
Poor: Household and Intrahousehold Impacts and Program Sustainability”,
Volume II, Bangladesh Institute of Development Studies.
Ling, Z.; Zhongyi, J. & Von Braun, J.V. (1996). “Credit for the Rural Poor in
China”. Project Report to Deutsche Gesellschaft für Technische Zusammenarbeit.
Washington DC: International Food Policy Research Institute.
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Ling, Z.; Zhongyi, J. & Von Braun, J. (1998). “Credit Systems in the Economic
Transformation of China: Institutions, Outreach and Policy Options”. Paper
presented at the international workshop on Innovations in Rural Micro-Finance
for the Rural Poor: Exchange of Knowledge and Implications for Policy, organized
by the International Food Policy Research Institute, held in Accra, Ghana, 9–13
November.
Lipton, M. (1976). “Agricultural Finance and Rural Credit in Poor Countries”.
World Development, 4(7): 543-53.
Abstract: Examines effect of policy intervention in agricultural finance by comparing two
approaches: the mainstream institutional approach, which has involved creating extra rural credit
through new, subsidised institutions and neo-classicism approach, which is tougher and marketorientated. Concludes that the latter may offer more hopeful solutions, both for institutions to be
sustainable and for the poor to be accessible, because:
•
The former has in most cases achieved little, at high cost.
•
Inappropriate incentives, such as tolerated default and subsidised interest, benefit mainly
the richer and less efficient users and suppliers of credit.
Emphasizes importance of in depth study of rural communities to reappraise their power structure,
given borrowing and lending are set in the context of multiplex relations among rural groups, and
between them and urban patrons.
Mahon, C. (1999). “Nicaragua Financial Services to Microentrepreneurs: A Study
of Rural Credit Unions”. WOCCU Research Monograph Series, No. 15.
Abstract: In Nicaragua, credit unions offer access to capital and savings mechanisms to poor, rural
entrepreneurs. Capital enables the entrepreneurs to grow their businesses and savings
mechanisms generate greater liquidity for the enterprises and the households. This paper is the
result of a study by USAID and WOCCU who have been working to expand the financial services of
Nicaragua's rural credit unions in a project which started in 1996. The experiences of six high
growth credit unions with microenterprise financial services were reviewed. These credit unions
offered flexible, customised lending to meet the needs of first-time and small borrowers. In
particular they provided:
•
•
•
Flexible collateral and capacity-to-pay lending criteria for loans of less than $500
Monthly, bi-weekly, weekly or daily loan repayment plans
Stepped or graduated lending to first-time loan applicants and those with limited capacity
to pay.
It is interesting to note that more than 56% of the microenterprise loans were to women.The
study found that these credit unions were filling an unmet need for rural micro entrepreneurs.
Borrowers reported that the credit unions' services were more convenient and provided faster
turnaround on loan requests than other agencies. They had been able to obtain discounts on
purchases and "wait for their price" on non-perishable goods, as well as generate additional
earnings on savings.
Mallorie, E. (2005).
Bangladesh”. IFAD.
“Review
of
IFAD
Experience
with
Rural
Credit
in
Abstract: This paper describes IFAD’s policy and approach to rural credit, its experiences in
Bangladesh and the impact of a series of recent projects. The paper outlines the performance of
credit operations in these projects. Finally some of the challenges for future projects are described.
IFAD (the International Fund for Agricultural Development) was established as an agency of the
UN in 1977. IFAD focuses exclusively on rural poverty reduction and, in particular, targets the
poorest and most deprived sections of the rural community. IFAD’s approach is flexible and
participatory, and projects involve partnerships with wide range organisations – other donors,
government agencies, grass-roots organisations and NGOs. Although the major part of IFAD’s
work is in supporting projects with loans to governments (total disbursements are in the order of
US$300 million per year), a small amount of grant funding is available for small research and
training projects. In total IFAD activities have covered 115 countries and territories. IFAD’s
approach involves enabling the rural poor to overcome their poverty by fostering social
development, gender equity, income generation, improved nutritional status, environmental
sustainability and good governance. IFAD is concentrating its efforts on three strategic objectives:
•
strengthening the capacity of the rural poor and their organizations (human and social
assets);
69
•
•
improving equitable access to productive natural resources and technology (productive
assets and technology); and
increasing access to financial services and markets (financial assets and markets). In
addition, and cutting across these three strategic objectives, IFAD aims to address gender
inequalities and increase women’s capabilities, and also to reduce the vulnerability of many
groups of the poor. For Asia and the Pacific, IFAD’s regional strategy envisages focus on
less favoured areas, and on women and marginalised minorities (indigenous people and
other excluded groups).
McGregor, J.A. (1994). “Government Failures and NGO Successes: Credit,
Banking and the Poor in Rural Bangladesh, 1970-90”. Poverty, Inequality, and
Rural Development, edited by Tim Lloyd and Oliver Morrissey. London: MacMillan
Press. p. 100-121.
Mesbah, D. (1998). “The Role of credit unions in Salvadoran financial markets:
Expanding and improving the delivery of financial services to the rural poor”.
WOCCU Research Monograph Series no. 16.
Abstract: This monograph presents survey information about members’ practices and needs. More
specifically, it provides marketing information to the fourteen project credit unions in El Salvador
regarding members’ and non-members’ 1) demographic characteristics; 2) economic
characteristics; 3) use of financial services; and 4) perceptions of credit union services. The
information was used to guide credit union reforms; help credit union leaders evaluate and
improve their services; monitor the economic well-being of lowand middle-income credit union
members; and monitor the impact of the project over time on members (savings behavior, access
to credit, production activities).
Meyer, R.L. & Nagarajan, G. (1995). “Evaluating Credit Guarantee Programmes
in Developing Countries”. Unpublished paper. Columbus, OH: Department of
Agricultural Economics, The Ohio State University, November.
Meyer, R.L. & Nagarajan, G. (1996). “Credit Guarantee Schemes for Developing
Countries: Theory, Design and Evaluation,” Report prepared for the Office of
Economic and Institutional Reform, Center for Economic Growth, USAID,
Washington, DC.
Mishra, A. (2001). “Coordination Failure in the Rural Credit Market”. Journal of
Microfinance, Vol. 3, No. 1.
Abstract: This paper tries to explain the curious fact that while at the national level the rural sector
saves more than what it invests in itself in India, at the micro level, credit constraint is reported to
be the main binding constraint on the activities in the rural economy. The explanation lies in the
phenomenon of coordination failure. The public sector rural banks mobilize huge amounts of
savings, but because of low rates of interest and high default rates, they do not lend in equal
measure. Indeed, in India the public sector rural banks mobilize as savings three times the
amount they lend as credit for investment. Raising the rate of interest at which the rural banks
lend will not only raise the savings but also the investment in the rural sector. This is because at
the current low level of rate of interest the rural credit market is severely rationed. As the rate of
interest is allowed to rise more banks become viable, banks increase their lending, more people
are brought into the ambit of rural banks and away from the money lender. The poor especially
benefit as this increased rate of interest is still only half the rate of interest that the moneylender
charges. The policy suggestion is to allow the public sector rural banks to charge economically
viable and market clearing rates of interest.
Mosley, P. (1999). “Micro-macro linkages in financial markets: The impact of
financial liberalisation on access to rural credit in four African countries”.
Manchester, UK: Institute of Development Policy Management.
Abstract: Almost every programme of economic reform contains a financial liberalisation
component; but little work has been done to assess the effects of financial liberalisation on access
to credit in individual markets. Paper presents a model of this linkage, which predicts that
conventional financial de-repression will have no significant effect on the price and availability of
70
credit in the informal sector, but that financial innovation in the informal sector will affect such
availability considerably. Tests this proposition specifically against data for the period of financial
reform in four African countries: Uganda, Kenya, Malawi and Lesotho. Such reforms had significant
effects on interest rates, but except in Uganda these effects did not feed through into an increase
in savings rates or in access to rural credit. Such access was, however, favourably influenced by
institutional innovation on the supply side of the market for small-business and small-farm credit.
Likewise, in two of the case-study countries - Malawi and Uganda - financial de-repression had
insignificant effects on poverty and privatisation of the bottom end of the credit market on its own
had disastrous effects, but expansion of the supply of smallholder credit had a highly positive
poverty-reduction effect.
Nanda, P. (1999). “Women’s Participation in Rural Credit Programmes in
Bangladesh and Their Demand for Formal Health Care: Is There a Positive
Impact?” Health Economics, 8: 415-28.
Abstract: Within the overall aim of poverty alleviation, development efforts have included credit
and self-employment programmes. In Bangladesh, the major beneficiaries of such group-based
credit programmes are rural women who use the loans to initiate small informal income-generating
activities. This paper explores the benefits of women's participation in credit programmes on their
own health seeking. Using data from a sample of 1798 households from rural Bangladesh,
conducted in 1991-1992 through repeated random sampling of 87 districts covered by Grameen
Bank, Bangladesh Rural Advancement Committee (BRAC) and Bangladesh Rural Development
Board (BRDB), this paper addresses the question: does women's participation in credit
programmes significantly affect their use of formal health care? A non-unitary household
preference model is suggested to test the hypothesis that women's empowerment through
participation in these programmes results in greater control of resources for their own demand for
formal health care. The analysis controls for endogeneity due to self-selection and other
unobserved village level factors through the use of a weighted two stage instrumental variable
approach with village level fixed effects. The findings indicate a positive impact of women's
participation in credit programmes on their demand for formal health care. The policy simulations
on the results of this study highlight the importance of credit programmes as a health intervention
in addition to being a mechanism for women's economic empowerment.
Navajas, S. (1999), “Credit for the Poor: Microlending Technologies and Contract
Design in Bolivia”. unpublished Ph.D. dissertation, The Ohio State University.
Navajas, S.; Schreiner, M.; Meyer, R.L.; Gonzalez-Vega, C. & Rodríguez-Meza, J.
(2000). “Microcredit and the Poorest of the Poor: Theory and Evidence from
Bolivia”. World Development. Volume 28, No.2, 333-346.
Abstract: We construct a theoretical framework that describes the social worth of a microfinance
organization in terms of the depth, worth to users, cost to users, breadth, length, and scope of its
output. We then analyze evidence of depth of outreach for every microfinance organizations in
Bolivia. Most of the poor households reached by the microfinance organizations were near the
poverty line–they were the richest of the poor. Group lenders had more depth of outreach than
individual lenders. The urban poorest were more likely to be borrowers, but rural borrowers were
more likely to be among the poorest.
Okoye, C.U. (1998). “Assessing the participatory aspects of credit Programmes:
Evidence from a village adoption scheme in Nigeria”. Development Policy Review
16: 115-30.
Abstract: This paper draws on the experience of a rural credit programme (the Village Adoption
Scheme (VAS) in Anambra state, Nigeria) to explore how participation can remove some of the
acknowledged causes of failure in rural finance institutions and credit programmes. Under the VAS,
eligible farmer groups are 'adopted' by lending institutions and other private sector organizations.
In particular, the paper discusses: the concept and principles of participation; participation as a
measure of success in credit programmes; how the VAS framework addresses rural finance
institution and credit programme problems (screening of borrowers, monitoring, supervision and
enforcement, information asymmetries, missing and incomplete markets); problems in the VAS
approach (traditional participative ethics, rigidity of stakeholders' management ethics, higher risk
from widening the scope of participation, and apathy). Lessons learned and recommendations are
made.
71
Osmani, L.N.Khan. (1998). “Impact of Credit on the Relative Well-Being of
Women: Evidence from the
Grameen Bank”. IDS Bulletine: Micro-credit:
Impact, Targeting and Sustainability; Vol.29, No.4.
Abstract: This study examines the impact of credit on women's relative well-being in Grameen
Bank's credit programme. Using a bargaining model of the household, as extended by Amartya
Sen, well-being has been defined in terms of three sets of capabilities: (i) autonomy, (ii) control
over decision-making within the family, and (iii) relative access to household resources. It is
hypothesised that the relative well-being of women and men depends on their respective
bargaining power, which in turn depends on three factors: breakdown position, perceived
contribution to the family and perceived self-interest.
Padmanabhan, K.P. (1988). “Rural credit: Lessons for rural bankers and policy
makers”. 138 pp. Intermediate Technology Publications Ltd.
Park, A. & Sangui W. (1998). “Rural Household Credit in China’s Poor Areas”.
Working Paper. Department of Economics. Ann Arbor: University of Michigan.
Park, A.; Brandt, L. & Gilesm, J. (2003) “Competition under Credit Rationing:
Theory and Evidence from Rural China”. Journal of Development Economics, Vol.
71, No. 2, August.
Abstract: We present a duopoly model of financial competition to describe the conditions under
which competition leads to greater bank effort when repressed financial systems ration credit. The
model features an entrant that freely sets its interest rate, and an incumbent that must charge a
rate below that which is market clearing. Both players may exert costly effort to inform themselves
about borrower types. Using data on rural financial institutions in China, we test empirically the
effects of competition on deposit growth, loan portfolio composition, repayment rates, and other
effort measures, finding positive effects of competition on effort and financial performance.
Pearce, D.H. (2003). "Buyer and Supplier Credit to Farmers: Do Donors have a
Role to Play?" Paving the Way Forward for Rural Finance: An International
Conference on Best Practices, Washington, D.C., June 2-4, 2003.
Abstract: Traders, processors, input suppliers, and exporters are the primary source (alongside
moneylenders) of credit to poor agriculture-dependent households. These buyers and suppliers
provide credit to farmers as part of input supply and product purchase transactions. They
overcome key constraints to lending to farmers—for example, high operating costs, lack of client
information, and risk associated with agricultural activities—by linking credit to the provision of
other services, such as input supply (fertilizer, seeds etc) and technical advice. In many cases,
they also tie credit to subsequent sale of produce. Even in those rural areas where financial
markets are shallow and poorly developed, product-market credit may be widespread. Yet the
range of financial products provided in product-markets by buyers and suppliers is narrow. It
primarily consists of seasonal credit and short-term advances. Smaller or more remote farmers
may have limited market options, may be dependent on a few traders with less favorable credit
terms, or may not have access to product-market credit at all. Increased trader activity can lead to
credit being provided on better terms. If financial service providers also enter the picture, then the
range of financial services available to agriculture-dependent households will also be increased. For
small farmers to be good credit risks, they need the technical services, inputs, and sales
agreements that form part of the relationships of product market credit, however. If credit is
offered by financial institutions rather than through the product-market, then those financial
service providers will need to be sure their farmer clients still have access to those non-financial
inputs and services. There is a case for donors to help address product and financial market
failures that limit the access of the agriculture-dependent poor to the financial services that they
need. Yet any donor intervention in product and financial markets risks distorting or damaging
those markets. A complementary, and critical, area for donor support is improving the enabling
environment for rural financial service provision.
Pender, J.L. (1996). “Discount rates and credit markets: Theory and evidence
from rural India”. Journal of Development Economics, Volume 50, Issue
2, August, Pages 257-296.
Abstract: Three models of credit markets - (1) the permanent income model, (2) upward sloping
credit supply to individual borrowers, and (3) constrained credit due to imperfect enforcement -
72
are tested using credit market data and an experimental study of individuals' discount rates in
south India. The permanent income model is rejected by both the discount rate and the credit
market data. The discount rate data are consistent with either of the other two models, while the
credit market data are consistent with a combination of these two models. Other explanations are
found to be insufficient to explain the results of this study.
Pitt, M. & Khandker, S.R. (1998). “The Impact of Group-Based Credit Programs
on Poor Households in Bangladesh: Does the Gender of Participants Matter?”
Journal of Political Economy 106 No. 5 (1998): 958-996.
Abstract: This paper estimates the impact of participation, by gender, in the Grameen Bank and
two other group-based micro credit programs in Bangladesh on labor supply, schooling, household
expenditure, and assets. The empirical method uses a quasi-experimental survey design to correct
for the bias from unobserved individual and village-level heterogeneity. We find that program
credit has a larger effect on the behavior of poor households in Bangladesh when women are the
program participants. For example, annual household consumption expenditure increases 18 taka
for every 100 additional taka borrowed by women from these credit programs, compared with 11
taka for men.
Rahman, Aminur. (1999). “Micro-credit initiatives for equitable and sustainable
development: Who pays?” World Development, Volume 27, Issue 1, January
1999, Pages 67-82.
Abstract: There is a growing acknowledgement that micro-credit programs have potential for
equitable and sustainable development. However, my anthropological research on the micro-credit
program of the Grameen Bank shows that bank workers are expected to increase disbursement of
loans among their members and press for high recovery rates to earn profit necessary for
economic viability of the institution. To ensure timely repayment in the loan centers bank workers
and borrowing peers inflict an intense pressure on women clients. In the study community many
borrowers maintain their regular payment schedules through a process of loan recycling that
considerably increases the debt-liability on the individual households, increases tension and
frustration among household members, produces new forms of dominance over women and
increases violence in society.
Rahman, R.I. (1986). “Impact of Grameen Bank on the Situation of Poor Rural
Women.” In Rahman et al., eds.: Early Impact of Grameen: A Multi-Dimensional
Analysis: Outcome of a BIDS Research Survey. Dhaka, Bangladesh: Grameen
Trust.
Rajshekar, D. & Vyasulu, V. (1990), "Rural Credit Delivery System: A Study in
Pali District of Rajastan". Economic and Political Weekly, September 29, pp.
A:125-A:134.
Rajshekar D. (1993), "Confusing Signals on Rural Credit". Financial Express
August 25, 1993.
Rajasekhar, D. & Vyasulu, V. (1993), "Managerial Changes, Rural Credit and
Economic Development: A Study in Orrisa, India" Savings and Development.
Volume XVII, Number 2, pp. 183-208
Rajasekhar, D. (1994). "Agricultural Poverty and Rural Credit in India: Some
NGO Experiences". Draft Paper. Bangalore: Institute for Social and Economic
Change, 27 p.
Remenyi, J. (1991), “Where Credit is Due”. London: IT Publications, 156 p.
Rose, El. (1999). "Gender Bias, Credit Constraints and Time Allocation in Rural
India".
Abstract: This paper examines the impact of a child's gender on the time allocation of rural Indian
households for the five-year period subsequent to its birth. A theoretical model generates
73
predictions for the effect of the birth of a boy relative to a girl (i.e., the gender shock) on
household behaviour when the household is liquidity constrained and when it is not. The results
from the empirical analysis are consistent with the case in which poorer households are liquidity
constrained and less poor households are not. The interpretation of the finding that women in both
groups of households work less subsequent to the birth of a boy relative to a girl differs in these
two cases.
Rosenberg, R. (2006). “Aid Effectiveness in Microfinance: Evaluating Microcredit
Projects of the World Bank and the United Nations Development Programme”.
CGAP.
Abstract: This note sets out the results of an in-depth evaluation of the microcredit portfolios of
the World Bank and the United Nations Development Programme. The World Bank evaluation
reviewed only “lines of credit”, where project resources were used to fund microlending; thus, the
study did not only include the Bank’s activities in policy support for governments and technical
assistance to MFIs. The UNDP evaluation covered all its microlending projects, but only two of
those projects were policy orientated and none of them provided technical assistance only. The
results provide a “disappointing picture”. They show that less than a quarter of the projects that
funded microlending were judged successful. The rest failed, or appeared unlikely, to produce
long-lasting results – that is, retail institutions and programs that could continue offering clients
quality financial services over the longer term without losing their capital and needing continuing
infusions of money from governments or development agencies. The cause of the problem is not
put down to weak staff at these agencies; instead the study suggests that agency environments
and systems do not give their staff the right incentives, information, and resources for
microcredit.The note begins by setting out the scope and methodology of the evaluation before
providing an in-depth analysis of the findings. It then discusses in turn each of the root causes
associated with the poor results – incentives, information and resources. Finally the note sets out
the recommendations.
Schmidt, R.H. & Zeitinger, Claus-Peter (1996), “The Efficiency of Credit-Granting
NGOs in Latin America”. Savings and Development, Vol. 20, pp. 353-384.
Shams, M.K. (1992). “Designing Effective Credit Delivery System for the Poor The Grameen Bank Experience”. Dhaka: Grameen Bank, 34 pp.
Siamwalla, A. et al. (1989). “The Thai Rural Credit System: A Description and
Elements of a Theory”. Paper presented at the World Bank Conference on
Agricultural Development Policies and Theory of Rural Organization, Annapolis,
Maryland.
Singh, S. (1990), "Rural Credit: Issues for the Nineties". Economic and Political
Weekly, November 17, pp. 2531-2535.
Steinwand, D. (1998). “KPM Study: Survey on Groups of Microentrepreneurs
(KPM) Linked with Rural Credit Banks (BPR) in the Framework of PHBK”. second
draft. Project Linking Banks and SHG. Jakarta: Bank Indonesia, and Eschborn:
Deutsche Gesellschaft für Technische Zusammenarbeit.
Stiglitz, J.E. & Weiss, A. (1981), "Credit Rationing in Markets with Imperfect
Information" American Economic Review, Volume 71, Number 3, June, pp. 393410.
Tacis (Technical Assistance for Central Asian Independent States by the
European Union). (1996 & 1997). “Policy and Agro-Business Support Project:
Input I & II Report of Rural Credit Specialist”. Bishkek: Tacis Office.
Tacis (Technical Assistance for Central Asian Independent States by the
European Union). (1997). “Terms of Reference for Support of Sustainable Rural
Credit Services in Kyrgyzstan”. Bishkek: Tacis Office.
74
UNDP. (1991). "Credit for the Rural Poor: Replicating Bangladesh's Grameen
Bank". Cooperation South, December, pp. 3-7.
Vaessen, J. (2001). “Accessibility of Rural Credit in Northern Nicaragua: the
Importance of Networks of Information and Recommendation”. Savings and
Development, Issue no. 1, 2001.
Abstract: Access and outreach are two sides of the same coin that currently receive much
attention in the literature. This paper explores the accessibility of rural credit for the case of a rural
bank in Northern Nicaragua. Both the point of view of the potential client and the bank are
addressed. It is illustrated that local networks of information and recommendation are important
low-cost screening mechanisms for the rural bank. It is also shown that individual access to these
networks of information and recommendation related to existing clients or bank staff members is
the principal factor that determines household access to the bank's credit. The evolution of the
bank into a professional financial organisation has had a significant impact on outreach over the
territory. Expansion in portfolio of the bank went hand in hand with geographical expansion and
more dispersion of the clients over the territory. This development has affected poor households'
access to the bank's credit, since they depend on dense and elaborate local networks of clients in
order for information and recommendation effects as elements of social collateral to develop.
Varghese, A. (2005). "Bank-moneylender linkage as an alternative to bank
competition in rural credit markets". Oxford Economic Papers, Vol. 57, Issue 2,
pp. 315-335.
Abstract: This paper proposes a new method in which banks and moneylenders can link in rural
credit markets. Banks and moneylenders, two of the major lenders in rural credit markets, differ in
their information on borrowers and costs of funds. Due to information constraints, banks must
deny further loans to borrowers who cannot repay a certain amount. In the linkage, these
borrowers obtain loans from moneylenders, repay the banks, and have continuing access. We then
evaluate conditions under which the linkage would be preferred to bank competition and find that
the linkage dominates for a wide range of parameters. In light of recent proposals to liberalize
Indian banking, the analysis provides a cautionary note to the limits of introducing banking
competition in rural credit markets and provides an alternative.
Von Pischke, J.D. (1980). "Rural Credit Project Design, Implementation and Loan
Collection Performance". Savings and Development, Volume IV, Number 2, pp.
81-91.
Von Pischke, J. D. (1991). “Finance at the Frontier: Debt capacity and the role of
credit in the private economy”. Washington, D.C.: The International Bank for
Reconstruction and Development. The World Bank.
Abstract: This book discusses how to make good loans to individuals and firms at the "frontier."
This frontier is not geographic, but market-based. The book also indicates how lending at the
frontier can be remunerative to commercial banks, development banks, and other development
finance agencies that retail credit and assume credit risk.
Vyasulu, V. & Rajshekar, D. (1991). "Management of Rural Credit: Reflections on
Themes Emerging from Field Work". International Journal of Development
Banking, Vol. 9, No. 1, January, pp. 47-53.
Warning, M. & Sadoulet, E. (1998). “The Performance of Village Intermediaries
in Rural Credit Delivery under Changing Penalty Regimes: Evidence from
Senegal”. Journal of Development Studies, 35(1): 115 – 138.
Abstract: This article concerns the use of village intermediaries to mitigate asymmetric information
problems in rural credit delivery. We consider an example from Senegal and examine the
intermediaries’ screening of loan applicants. The results show that, when the intermediaries
expected to incur a substantial penalty in the event of borrower default, they engaged in
appropriate screening, allocating credit to borrowers likely to repay their loans. When the default
penalty was lowered, however, the intermediaries engaged in opportunistic screening, emphasising
political affiliation and consanguinity in their lending decisions. These results reveal both the
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potential efficacy of village intermediaries in allocating credit and their extreme sensitivy to
penalty regime.
Wickramanayake, J. (2004). “Financial Structure, Rural Credit and Supportive
Institutional Framework in Sri Lanka: An Empirical Analysis”. Savings and
Development, Issue no. 4, 2004.
Abstract: This is a study on Sri Lanka’s dualistic financial structure and changes in investment and
financing arrangements in its informal (rural) sector. The paper uses both cross-section and time
series data since mid-1950s to examine the supportive institutional aspects of financing (Stiglitz
and Weiss 1981, and Stiglitz 1989). First part of the paper provides a descriptive analysis of Sri
Lanka’s dualistic financial structure, urban bias in finance and the degree of monetisation of the
rural sector. The second part of the paper is devoted to an analysis of savings, investment and
loan arrangements in the informal sector using the latest cross-section data available. The third
part of the paper provides an empirical analysis of rural credit scheme for rice (paddy) production
in the informal sector in Sri Lanka. This part of the paper involves use of regression analysis on
time-series data for the rural credit scheme for the period 1980-2001. The results of the
regression analysis show that the level of credit extended is positively related to the number of
rural bank branches and the level of repayments under the credit scheme. The analysis also shows
that the level of credit repayments is positively influenced by crop insurance, farm gate price of
paddy and the level of credit extended. This paper indicates that gradual but considerable progress
has been made since the early 1980s in overcoming financial dualism and improving the level of
informal sector financing in Sri Lanka. The main policy implication of the empirical analysis is that
formal institutional arrangements such as rural credit schemes, rice marketing, rural banking
access and crop insurance should be continually reinforced to improve the economic conditions in
the informal sector.
Zeller, M.; Sharma, M. & Ahmed, A.U. (1996) “Credit for the rural poor: Country
case Bangladesh”, Final report submitted to the German Agency for Technical
Co-operation (GTZ). International Food Policy Research Institute, Washington,
DC.
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Formal Finance
ˆ General
ACCION. (2003). “Market Intelligence – Making Market Research Work for
Microfinance”. ACCION Insight No. 7.
Abstract: As the microfinance market grows and the demand for different products evolves, MFIs
will be required to better understand the changing needs and preferences of their clients. This
paper highlights the need for MFIs to add "market intelligence" to their core competencies – it
believes that MFIs have a wide-range of marketing needs that can be addressed, including the
need to:
•
•
•
•
•
•
•
Attract customers, often in the face of competition
Strengthen loyalty of and retain customers, especially profitable ones
Build brand awareness and image
Refine existing products and introduce new ones
Improve customer service and product delivery
Develop sustainable competitive strategies and strengthen positioning
Penetrate new markets and deepen reach in existing ones
The paper suggests that market intelligence is the ability of an MFI to collect data in a systematic
and objective fashion, to analyse and interpret this information and to apply it in order to develop
strategic recommendations and action plans. In particular, it stresses the latter point as the key
differentiator from pure market research. As such, this paper aims to guide readers through the
processes necessary to implement a successful market intelligence program at an MFI. It is based
around the activities and tools that ACCION has developed for each phase of the market
intelligence process. It also discusses two ACCION technical assistance projects, one in Latin
America and the other in Africa, to demonstrate further how these market intelligence tools have
been applied in practice.
Bankakademie. (2000). “Marketing for Microfinance Depositories”. GTZ.
Abstract: This toolkit details the aspects of a comprehensive marketing programme necessary for
microfinance institutions to become fully client-oriented. In order to ensure the relevance of the
content, the toolkit highlights the marketing approaches of several financial institutions currently
operating in Africa, Asia, the Caribbean and Latin America. The toolkit is divided into the following
Chapters:
1. Marketing basics.
2. Strategic marketing - covering company objectives, market research and market
segmentation.
3. Operational marketing - covering product policy, pricing policy, distribution policy and
promotion policy.
4. Exercises and checklists.
Bhatt, V.V. & Meerman, J. (1978). “Resource mobilization in developing
countries: Financial institutions and policies”. World Development, Volume 6,
Issue 1, January 1978, Pages 45-64.
Abstract: Discussion in this paper of the areas and scope for domestic policy action aimed at
improving the process of domestic resource mobilization, allocation and use is developed in several
stages. First, the authors assess the progress made by LDCs in raising their rates of saving and
investment over the past 25 years. Next, government policies — government tax expenditure and
pricing policies, in particular — and their effect on public savings are discussed. This is followed by
treatment of the issues of private saving performance and allocation, i.e. how to stimulate and
make better use of household savings. Institutional and policy measures are suggested as means
of promoting a more active role of the banking system. Brief reference is made to the role of
development banks in project preparation and in tapping the capital market.
77
Binswanger, H.P. & Khandker, S.R. (1995). “The Impact of Formal Finance on
the Rural Economy of India”. Journal of Development Studies, 32(2): 234-262.
Abstract: Expanding the availability of agricultural credit has been widely used in developing
countries as a policy to accelerate agricultural and rural development. However in most cases
credit and credit institutions were heavily subsidised Empirically evaluates costs and benefits of
agricultural credit programmes. Results show that:
•
Rapid expansion of commercial banks in rural areas has had a substantially positive effect
on rural non-farm employment and output
•
Output effects of rural finance has been much smaller in agriculture than in the non-farm
sector
•
Overall impact of rural credit on rural wages has been positive, as creation of non-farm
employment has added more to total employment than has been subtracted by
substitution of capital for labour in agriculture. Therefore even agricultural wages have
risen modestly
Yet there have also been high costs to the Government from this policy created by factors such as
poor repayment. In fact, the analysis implies that government costs of providing credit could have
exceeded net agricultural benefit.
Brown, W.; Green, C. & Lindquist, G. (2000). “A Cautionary Note for
Microfinance Institutions and Donors Considering Developing Microinsurance
Products.” USAID Microenterprise Best Management Practices Project.
Abstract: The paper states that protecting poor clients from risks, reducing microfinance
institutions (MFIs) loan defaults, and earning additional income for MFIs loan portfolio are some of
the reasons for the flood of initiatives by MFIs to develop insurance products (microinsurance) for
the low-income market. It highlights the reasons why most MFIs should not provide insurance
themselves and identifies alternatives that are more appropriate for MFIs but still address clients?
need for improved risk management. It discusses the potential market for microinsurance, how to
respond to client demand through partnership, and insurer capabilities. It concludes that
•
although the poor are highly vulnerable to a variety of risks, this vulnerability does not
necessarily translate into a demand or need for insurance
•
The vast majority of MFIs lack the expertise required to price products effectively, do not
have the resources to support an insurance product, and are too small to achieve sufficient
pooling of risk.
Cécile, L. (2000). “The Role of the State in Promoting Microfinance Institutions”.
IFPRI.
Abstract: This paper from the International Food Policy Research Institute tackles the huge and
complex issue of government intervention in the development of microfinance institutions (MFIs).
It will be of interest to economic theorists as well as policy-makers and persons seeking a concise
overview of the history of the role of the State in promoting MFIs around the world. The author
begins by setting out her terms of reference, and then moves on to provide a brief history of
government intervention in microfinance in the 1960s and 1970s. For some, this will prove one of
the most useful sections of this ambitious paper. From the birth of public agricultural banks in the
1960s to their increasing rate of failure in the 1970s and 1980s, the author looks very briefly at
different countries’ experience of government experiments in rural microfinance before moving on
to the ways these institutions developed, learned, or collapsed in response to economic crises and
other problems. The example of the Bank Rakyat Indonesia (BRI), which went from being an
unsuccessful credit institution in the 70s and early 80s to a successful MFI with a high rate of loan
repayment in the late 80s and 90s is cited as a success story, though other experiments,
particularly in French-speaking West Africa, did not end so happily. The author then identifies
three current models of the role of the State in the financial system: integration, as exemplified by
the Indian National Agricultural Bank for Agriculture and Rural Development (NABARD), in which
microfinance institutions are integrated within the public sector; complementarily, in which the
State and the private sector are complementary and do not exclude each other, as in the case of
BRI: and an alternative model, in which MFIs develop as an alternative to the deficient role of the
State and the market, as in Madagascar’s ambitious but so far limited agricultural public bank,
BTM. The paper concludes with a discussion of the necessary role of the State to promote MFIs,
stressing the utility of a state-enforced minimum banking structure in rural areas, state
subsidization of microfinance with start-up capital and innovations, and investing in
complementary services such as infrastructure, health, and education. The author stresses the
necessity of governments developing a clear and flexible regulatory structure for MFIs, giving
enforcing agencies real powers, and ends by suggesting that efficient governance is more or a
determinant in the success or failure of an MFI than the distinction of ownership by the public or
78
the private sector. This paper is strongly prescriptive in nature, rather than acting as a study; a
useful chart on p.30 summarizes the author’s views of the alternatives in regulation of MFIs in
comparison with commercial banks. While some of her conclusions are a little too vague (for
instance, she says that “because of the complexity of regulating microfinance institutions, some
‘rules of the game’ should be disseminated and implemented beyond the strict enforcement of the
regulatory frame”, but does not explain how), her analysis of the role of the State in MFIs is
generally convincing.
CGAP. (1998). “Cost Allocation for Multi-service Micro-finance Institutions”.
Occasional Paper No. 2.
Abstract: Using examples from the field and an actual MFI (BRAC), the paper explores alternative
answers to a series of questions that MFI managers should ask themselves regarding the allocation
of costs and assets among cost centers and the impact of cost allocation on the financial
statements of multi-service MFIs.
CGAP. (2004). “Financial Institutions with a “Double Bottom Line”: Implications
for the Future of Microfinance”. Ocassional Paper no. 8.
Abstract: This paper begins with an important clarification of data citing over 750 million savings
and loan accounts in financial institutions that focus on clients that are generally below the level
served by commercial banks. The authors notes read “A correct statement of this paper’s main
conclusion is that there are over 750 million accounts in various classes of financial institutions
that are generally aimed at markets below the level of commercial banks, and that some
substantial fraction of these institutions’ clients are probably poor or near-poor, This message is
not that the task is nearly done (anyone with field experience knows this to be untrue), but rather
that these institutions represent an important potential opportunity”. The paper refers to
institutions that have a “double bottom line” as those that focus to some extent on providing
financial services downward from the economic level of the traditional clients of commercial banks.
As well as a financial objective, they also have a developmental or social objective. The paper
suggests that the managers of these institutions would class the latter objective as primary and
that sound financial performance was there to merely enable the institutions to achieve this. This
paper refers to these institutions as “alternative financial institutions” (AFIs). Specialised MFIs are
distinguished from other AFIs by the reasoning that they tend to be more specifically focused on
the poor and near-poor, not just the unbanked. The research reported in this paper suggests that
specialised MFIs account for a relatively small proportion of the total savings and loan services
delivered by AFIs. It argues that while governments, donors, and other interested in the outreach
of microfinance should continue to foster the growth of high-performing MFIs, these stakeholders
also need to think about the opportunities and challenges presented by the other AFIs. Yet despite
their vast outreach, the paper notes that AFIs probably serve only a minority of the unbanked
clientele they were created for, and many suffer significant limitations. This paper reports the
results of the CGAP survey of the global outreach of AFIs, then discusses in more details the
characteristics of the types of institutions that were surveyed, and finally suggests some strategic
implications for those who want to help develop financial systems that work for poor people. The
annex discusses methodology, as well as some key limitations of the data used.
CGAP, (2005). “Confianza in Peru Overcomes Adversity by Diversifying Loan
Portfolio”. Agricultural Microfinance: Case Study No 1.
Abstract: Confianza is a small regulated microfinance institution in central Peru that today provides
agricultural loans alongside a range of rural, urban, small business, housing, and consumer loans
to low-income clients. From its beginnings as an Inter-American Development Bank-funded NGO
program in 1993 until becoming a regulated microfinance provider in 1999, ConfianzaÕs loan
portfolio was almost exclusively devoted to solidarity group loans for agricultural purposes. When a
combination of factors, including plunging commodity prices, led to an arrears rate of over 50
percent in 1999, Confianza was forced to make a set of swift, substantial changes in order to
survive: The MFI altered its lending methodology, instituted stricter lending requirements and
monitoring, and added urban and individual loans to diversify its portfolio. Its non-agricultural
port-folio flourished, and Confianza also maintained a focus on agricultural lending (about a
quarter of its total portfolio), with lending to agriculture almost quadrupling in volume over the
next few years. By year-end 2002, Confianza had become financially sustainable, lending more
than $4 million annually, with a respectable arrears rate (portfolio at risk >30 days) of less than 4
percent and a 19 percent adjusted return on equity. Notably, its agricultural arrears rate has
remained consistently lower than that of the portfolio as a whole.
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CGAP, (2005). “Building Capacity for Retail Microfinance”. Donor Brief No. 24.
Abstract: Retail financial institutions remain the backbone of financial systems that serve lowincome clients. They need complex skills to offer poor people quality financial services on a
permanent basis. In most countries, inadequate retail capacity is the main bottleneck to scaling up
microfinance. This brief addresses how funding agencies - public donors, international NGOs,
private foundations, and investors - can help meet the challenge of developing retail capacity.
CGAP, (2006). “Graduating the Poorest into Microfinance: Linking Safety Nets
and Financial Services”. Focus Note No. 34.
Abstract: Does microfinance reach the poorest? Some MFIs are finding ways to team up with
existing safety net programs in hopes of making themselves at least indirectly useful to the
poorest. Some safety net and grant programs are deliberately providing financial training and
information to their clients so that their clients can subsequently link with MFIs. In other words,
people who benefit from safety net programs may "graduate" to become full-fledged microfinance
clients. This Focus Note discusses two basic models of linkages between MFIs and safety net
programs.
CGAP. (2006). “Safe and Accessible: Bringing Poor Savers into the Formal
Financial System”. Focus Note No. 37.
Daru, P.; Churchill, C. & Beemsterboer, E. (2003). “The Prevention of Debt
Bondage with Microfinance-led Services”. ILO.
Abstract: Millions of the poorest and most vulnerable workers in South Asia are bonded to their
employers as they strive, often in vain, to repay loans. The root causes of this bondage include:
interlinked and monopolistic labour and credit markets, deeply entrenched social exclusion, and
asymmetric information particularly regarding legal rights. The International Labour Organization,
together with its social partners and other relevant stakeholders, is currently pilot testing
microfinance-led prevention strategies in India, Pakistan, Nepal and Bangladesh. This paper
describes this initiative and summarises the early findings of this effort.
DeGennaro, R.P.; Lang, L.H.P. & Thomson, J.B. "Troubled Savings and Loan
Institutions: Turnaround Strategies under Insolvency”. (Available online: April
25,2003).
Abstract: Unexpected increases in interest rates during the early 1980s and decreases in asset
quality in the late 1980s caused massive losses throughout the savings and loan industry.
Insolvency was common. But because of bureaucratic forbearance, funding constraints, and
federal deposit insurance, hundreds of insolvent thrifts continued to operate. This is because
regulatory agencies were unwilling or unable to close thrift institutions immediately upon
insolvency. Instead, they progressively reduced the thrift capital requirement and later refrained
from enforcing that requirement in the hope that the industry would recover. Coupled with deposit
insurance and the expanded investment and lending powers granted to the industry in the early
1980s, this regulatory forbearance gave thrift managers the opportunity to pursue strategies to
turn around their firms, to regain profitability and to restore adequate capital levels. Did the thrift
industry seize this opportunity? Did managers of successful thrifts adopt different strategies to
turn around their firms than managers of their unsuccessful counterparts? Or did they select the
same strategy and simply enjoy good fortune? Our results show that when the crisis surfaced in
the early 1980s, recovering thrifts operated in a fashion similar to failing thrifts. However, in the
mid-1980s, recovering firms pursued risk-minimizing strategies while non-recovering firms
pursued riskier, and on average, higher-growth strategies. The asset growth of unsuccessful thrifts
is consistent with a speculative growth strategy, while that of recovered thrifts is more consistent
with the natural market growth associated with successful firms. Perhaps surprisingly, given media
attention to fraud and managerial misconduct, we find no evidence of excessive perquisite
consumption in unsuccessful thrifts. We find that only 24 percent of the 300 thrifts in our sample
eventually did recover between the end of 1979 and the end of 1989, while 55 percent fail or
merge. The others survive as independent institutions, but with less than the three percent capital
requirement of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989; that is,
they not only failed to rebuild their capital to the previous five percent requirement, they did not
even meet the much less stringent hurdle in place by the end of the decade. Even with continued
regulatory forbearance, we find no evidence that their condition improved. These results have
important implications for both thrift managers and supervisory agencies. Our results suggest that
successfully turning around poorly capitalized thrifts during the 1980s was neither easy nor likely.
Those managers that were successful tended to concentrate on more traditional thrift activities
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involving lower-risk assets and liabilities. Regulatory agencies and thrift supervisors charged with
monitoring the industry cannot ignore the recovery rate for our sample thrifts of a mere 24
percent, and further, our evidence suggests that identifying firms which would eventually recover
would at best have been very difficult. Although other studies have shown that it is relatively easy
to distinguish risky thrifts from safe ones, pinpointing which of the insolvent institutions will
ultimately recover may not be possible using only financial data.
Development Finance Forum. (2004). “Capital Plus
Development in Development Finance Institutions”.
- The
Challenge
of
Abstract: This paper is an executive summary of a position paper written by members of the
Development Finance Forum (the Forum), a group of practitioners that has met for a week each
year since 1997. The Forum members use the term “development finance institutions” (DFIs) to
refer to diverse institutional forms, customer strategies, and products, which include microcredit,
loans to small and medium sized businesses, and investments in housing projects and community
facilities.The paper is aimed at other practitioners and socially-minded investors and donors. Its
aim is to set out, from a practitioner’s perspective, some of the pressing issues facing DFIs that
choose to have a “double bottom line” – of profitability and social impact – and to offer thoughts
about how best to approach these issues. To survive and be useful they must be sustainable. And
to be useful developmentally they must work towards social and economic impact. The authors see
the tool of capital as the glue around which other tools – technical assistance, information
services, environmental remediation, sectoral interventions, and more – adhere. They argue that
not only are these other tools attracted to capital, they are made more effective by it.
Dichter, T. (2005). “Hype and Hope: The Worrisome State of the Microcredit
Movement”. SAIIA NepadProject.
Abstract: This article which was published in eAfrica, provides a challenging critique of the
prevalent belief that microcredit leads to economic development and is a certain route out of
poverty. It is a wake-up call at the end of the International Year of Microcredit during which stories
of how small loans have helped microentrepreneurs to grow thriving businesses have flourished.
The author draws on history to point out that the development of the advanced industrial countries
did not depend on the average middle class or poor person having access to credit. The rise of the
middle class depended on economic growth which created jobs and increased buying power.
Nowadays in advanced economies most of us are not entrepreneurs and most of us use credit for
consumption. Dichter asks, therefore, why those working in development presume that the poor
are all budding entrepreneurs and will use credit only for income-generating activities. Much of
microcredit use in sub-Saharan Africa fits the old saying 'all dressed up and no place to go.' The
reality is that Africa offers an infertile context for borrowing as the only customers available to the
poorest are other very poor people. In such a context, the people at the bottom are by definition
the ones who 'need' credit the most, but can do the least with it. The author provides a number of
graphic examples from his own field notes to illustrate this point. All the evidence points to the fact
that credit certainly helps the poor meet consumption needs during periods of cyclical or
unexpected crisis but it rarely enables people to start or expand viable business activity. Dichter is
of the view that “microfinance evangelism” has made the prospect of microcredit being made
available to solid enterprises that can expand to create jobs, growth and underpin widespread
economic development less likely. “This is the paradox of microcredit: the poorest people can do
little productive with the credit, and the ones who can do the most with it are those who don't
really need microcredit, but larger amounts with often longer credit terms.” He considers that the
informal sector in much of Africa is in fact a default mode, a function of failing economies. It is not
the incubator of economic growth but a holding action where everyone (including government
employees) is forced to go since little else is available to them. Women who are repackaging spice
or selling single cigarettes or teabags are not standing at the threshold of participation in the wider
economy. “What would permanently help these women, and if not them, their children, are
governments that get their acts together and provide structures, laws, and institutions under
which people's evident interest in getting ahead in the world could be transformed into reality.”
Dichter observes that such interventions would require a far larger and more coordinated effort,
such as organised efforts to train farmers, buy their produce, and certify, package and find export
customers for it. The hype of microcredit, he thinks, is a diversion and that the microcredit
movement has become a victim of its own propaganda. Dichter believes that the microcredit
movement has shied away from rigorous studies of impact. Many would argue that if microcredit
plays a role in staving off worse poverty, then it is not a bad thing. He believes, however, that it is
a bad thing, if microcredit gets in the way of grappling with solutions to the problem of poverty
that are genuinely promising. “Development is the current frontier of the microcredit movement,
and the toughest challenge of all. In the end it is easy to give out microcredit, and using best
practices developed over the years, even relatively easy to get the money repaid. But the marginal
developmental returns from microcredit simply don't warrant the enthusiasm nor the money spent
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so far.” He concludes: “And so we come again to the familiar territory of the development
industry.... Since the 1970s, time and again our industry ignores complex and contextual
approaches to development (institutional, legal, governance, and other reforms) in favour of
superficial feel-good solutions that produce at best marginal changes, but satisfy the need to be
perceived as 'doing something for the poor.' The tough question needs to be asked: Is the goal to
ease the pain or to cure the disease?”
Dowla, A.U. & Alamgir, D. (2003) “From microcredit to microfinance: evolution
of savings products by MFIs in Bangladesh”, Journal of International
Development, Vol. 15, No. 8, pp. 969-988.
Abstract: This paper chronicles how the microfinance industry in Bangladesh has evolved from its
initial focus on credit, disbursing standardized loan products and collecting obligatory savings to
the development of flexible savings products. We describe the process through which the industry
gradually moved away from compulsory savings and introduce flexible savings. We provide
detailed descriptions of various savings related products used by MFIs in Bangladesh. We point out
the numerous problems that can arise when MFIs collects savings especially from non-members
without a proper legal framework. We conclude the paper by suggesting prudent regulation of MFIs
to ensure the security of the meager savings of the poor.
Dowla, A.U. (2004). “Micro-Leasing, the Grameen Bank Experience”. Journal of
Microfinance, Vol. 6, No. 2.
Abstract: Grameen Bank was the first microfinance institution (MFI) to introduce microleasing on a
large scale. This paper provides a preliminary evaluation of Grameen's leasing program. Instead of
providing a full-fledged impact assessment study, we examine the terms and conditions of the
leasing program and evaluate its success in terms of outreach, repayment rate, and asset
ownership. Analysis of program level data shows that the program is successful in terms of
outreach and repayment performance. Through the program, poor men and women have become
owners of power tillers, power looms, shallow machines, cellular phones, and even computers. The
success of leasing suggests some important lessons for MFIs. It shows that poor people have
diverse credit needs and that to help the poor borrowers to graduate out of poverty, MFIs have to
provide different and flexible products.
Fisher, T. & Sriram, M.S. (2002). “Beyond Micro-Credit: Putting Development
Back into Micro-Finance”. Oxfam in association with New Economics Foundation,
London.
Abstract: Microfinance is fast growing as a major development strategy and international industry.
It seems to provide a practical and workable tool to address the deep-seated challenges of
poverty. But can it really fulfill this promise? All too often the development goals of microfinance
are lost, either behind technical and managerial solutions in pursuit of financial sustainability, or
behind a narrow focus on the poorest. This book analyses Indian microfinance in depth to explore
how development can be put back into microfinance. It sets out how microfinance can be designed
in practice to contribute to a wide range of developmental objectives, including providing social
and economic security, promoting livelihoods, building peoples’ organizations, empowering women
and changing wider systems within society. The analysis covers the great diversity of microfinance
practice in India and its many innovative products and organizational features. It looks in detail at
the fast expanding movement of savings and credit or self-help groups in India and compares and
contrasts these with groups promoted by the Grameen Bank in Bangladesh. It explores social
entrepreneurship in the SHG movement in India and how to rise to the challenge of scale in Indian
microfinance. The book challenges much conventional wisdom in microfinance, especially the
dominant framework of financial sustainability and outreach to the poor. It demonstrates how
current analysis of efficiency in microfinance is simplistic, ignoring a range of real economic costs.
It breaks new ground by drawing on the disciplines of organizational development and
entrepreneurship to focus on the many organizational challenges and dilemmas that confront
microfinance practitioners and how these can be managed in practice. Most importantly it puts
development back at the heart of microfinance. Without doubt this book provides the most
comprehensive analysis available of microfinance practice in India and should be read widely by
microfinance practitioners, NGOs and funding agencies. It will be of significant interest to those
engaged in development studies, economics and sociology and should serve as a valuable
supplementary text for courses in development, poverty studies and development economics.
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Gonzalez-Vega, C. (1998). “Microfinance: Broader Achievements and New
Challenges”. Rural Finance Program, Department of Agricultural, Environmental,
and Development Economics, the Ohio State University.
Abstract: This is the author’s opening statement at the Second Annual Seminar on New
Development Finance. It contains three parts. The first part assesses dimensions of recent
achievements in microfinance. It defines achievements in terms of six dimensions of outreach
(quality, cost, depth, breadth, length, and variety) and of its relationships with sustainability. A
rigorous definition of expansion of the frontier is also provided. The second part discusses the
reasons for gaps among current achievements, potential supply, legitimate demand, and political
expectations. A distinction is made between gains in technical efficiency and innovation, and the
determinants of each type of improvement are examined. Threats from unwarranted political
expectations are also identified. The third part discusses recent changes in the microfinance field
due to systemic risk, increasing competition, improper regulation, and attempts of return by the
state to development finance. This section evaluates threats emerging from these changes.
Grant, W.J. & Coetzee, G. (2005). “The Role of Membership Based Financial
Services in Reaching the Underbanked, Primarily in Rural Areas”. ECIAfrica.
Abstract: This paper has been prepared for the Second African Conference on Microfinance. It
suggests at the outset that most challenges of access to financial services for the poor in urban
areas have been met, or progress is promising, while the challenges of rural areas, and still the
majority of poor people (in most settings) remain unanswered. It aims to highlight the optimal
roles for member-owned financial institutions (MOFIs) to develop the financial sector in weak
markets – in doing so it reviews some of the different issues surrounding the gaps in the financial
system and the places where MOFIs may be best suited to fill those gaps. The framework
presented has been prepared as a guide to financial institutions as they look at expansion
opportunities or to donors who wish to fund financial service development in targeted areas. The
paper begins by briefly setting out generic challenges faced by MOFIs. It then discusses the
concept of carrying capacity and considers the question "what institutional typology is the most
appropriate in which setting?" This section starts with a look at different settings (usefully
summarised in a market characteristics matrix) and what types of institutions have worked best
(to date) in those settings. The section concludes with a representation of the relationship between
market potential and the cost of service delivery, which it calls the "Carrying Capacity Curve" for
financial markets – this shows the acceptable level of cost of delivering the needed services in
order to remain sustainable in different markets. The paper then looks at defining the different
types of institutions, their products, and their characteristics before moving on to address the
challenges faced by different typologies. The paper sees the largest gaps in the financial system in
areas with high incidence of poverty, not able to carry high cost institutions, have low population
densities, and have tenuous links with financial systems of urban areas.
Hashemi, S.M.
& Rosenberg, R. (2006). “Graduating the Poorest into
Microfinance: Linking Safety Nets and Financial Services”. CGAP.
Abstract: This paper considers the questions of whether microfinance reaches the poorest and
whether microfinance can be linked to safety net programs. It notes that today there is much
debate about whether microfinance is for the poorest. Even in the case of MFIs that focus on
reaching very poor clients, there are substantial numbers of people who are too poor to
participate. For example, in Bangladesh, where MFIs are strongly focused on serving the very
poor, MFI concentration is highest among the second poorest quintile group; it is lowest among
the poorest quintile. Microfinance services are not aimed at the poorest communities. The first
section considers why this may be so. Following on from this, the paper states that microfinance is
not the only way to help people. It notes that there are other services and institutions, such as
“safety net programs,” that are usually better suited to the circumstances and needs of the
poorest. One approach to helping the poorest gain access to appropriate financial services may be
to start with safety net programs that will eventually help the poorest gain access to financial
services. This Focus Note explores a few cases where the poorest participate in grant-funded
safety net programs, where they receive non-financial support, such as employment, food aid,
training, etc., as well as support to graduate from their existing levels of poverty to a level where
they can make good use of access to appropriate financial services. These examples raise the
questions: Can microfinance help the poorest? If so, how? And can people “graduate” from being
recipients of grants to becoming full-fledged microfinance clients?
83
Hirschland, M. (2003). “Serving Small Rural Depositors: Proximity, Innovations
and Trade-offs.” Paper presented at the U.S. Agency for International
Development-World Council of Credit Unions conference, “Paving the Way
Forward for Rural Finance: An International Conference on Best Practices,”
Washington, DC, 2–4 June.
Abstract: This paper will examine how four organizations deliver convenient, financially sustainable
deposit services: the Bangladeshi NGO ASA that provides 360,000 depositors with a voluntary
service, the Nepali cooperative VYCCU that provides two services specifically for members who live
far from its office; the CVECAs, a network of over fifty village banks in the Malian Sahel; and over
2000 Kupfuma Inshungu groups in rural Zimbabwe that provide a contractual product to about
two-thirds of the women in their villages. The paper will then cull from these cases a menu of
delivery options and staffing strategies that make these systems sustainable. Finally, after
assessing the strengths and challenges of these delivery options, the paper will highlight the tradeoffs inherent in making deposit services convenient for small rural depositors.
Hossain, M. & Diaz, C.P. (1997). “Reaching the Poor with Effective Microcredit:
Evaluation of a Grameen Bank Replication in the Philippines”. Los Baños,
Philippines: International Rice Research Institute.
IFAD. (2003). “Ghana—Women’s Access to Formal Financial Services.” Rome,
Italy.
Abstract: Most rural people in Ghana do not have access to a bank, credit union or similar financial
service. It was estimated that access by small clients, such as the rural and urban poor, was
around 8% in 1998. Access is particularly low for rural people and in certain parts of the country.
Needs for both savings and credit access are most urgent among micro and small rural
entrepreneurs, many of whom are women. They require such services to escape from the low
investment–low production–low returns cycle. Informal mechanisms such as the susu and
moneylenders sometimes fill the gap, but they have drawbacks. Generally, small and often semiformal credit schemes have been more successful than the formal system in reaching such women.
The Bank of Ghana promoted the establishment of rural banks in the seventies, with the idea of
encouraging banking habits among rural households and mobilizing rural savings for agriculture,
fishing, forestry and other agro-based industries. In 1998, there were 132 rural banks in Ghana.
Since then, many of these banks have been closed, for a variety of reasons. Rural banks are very
unequally distributed, with the fewest in the upper east, upper west and northern regions. The
ownership of rural banks is broad based, and the banks are usually managed and operated by
residents of the locality who know the local conditions and people. But most rural women do not
have physical access to these banks. For instance, in the north, the ratio of banks to rural clients is
1:100 000, compared with the national average of 1:16 000 to 1:26 000. One bank can serve an
area of over 50 000 km2. For the majority of poor farmers, the cost of a trip to the bank is too
high, particularly since the process involved in bank loans often requires several trips. Clearly, the
best solution is to bring financial services closer to rural areas and rural women. But womentargeted financing programmes are not always a panacea. Excluding men has been found to
produce a ‘boomerang effect’, resulting in hijacking of loans, partial ‘payoffs’ to keep peace in the
family, loss of men’s or children’s help in the woman’s small business, refusal to release women’s
labour from other chores and even domestic violence. The best ‘gender-sensitive’ approach to
microfinance is one that takes account of the needs of both men and women in designing and
delivering financial services.
Izumida, Y. (1992). “The Kou in Japan: A Precursor of Modern Finance,” in D.W.
Adams and D.A. Fitchett, eds., Informal Finance in Low-Income Countries.
Boulder, Colorado: Westview Press, pp. 165-180.
Kabeer, N. & Matin, I. (2005). “The wider social impacts of BRAC’s group-based
lending in rural Bangladesh: Group dynamics and participation in public life”,
Monographs, BRAC, Series No. 25, March.
Abstract: In a context in which dominant relationships which govern the lives of the poor tend to
be vertically organized - explicitly or implicitly – as patron-client relationships, the group-based
strategies promoted by microfinance and other non-governmental organizations represent a form
of association based on horizontal principles and, moreover, one that they can ‘choose’ to belong
to instead of having membership imposed on, or ascribed to them, by their gender or their
poverty. However, not all microfinance groups embody the same internal dynamics and external
84
interactions. How does Brac's microfinance with its focus on groups and processes of
empowerment fare with respect to women's participation in public life?
Kaboski, J. & Townsend, R.M. (2005). “Policies and Impact: An Analysis of
Village Level Microfinance Institutions.” Journal of the European Economic
Association 3 No. 1(2005): 1-50.
Abstract: This paper uses variation in policies and institutional characteristics to evaluate the
impacts of village-level microfinance institutions in rural Thailand. To identify impacts, we use
policies related to the successful/unsuccessful provision of services as exogenous variation in
effective financial intermediation. We find that institutions, particularly those with good policies,
can promote asset growth, consumption smoothing and occupational mobility, and can decrease
moneylender reliance. Specifically, cash-lending institutions-production credit groups and
especially women's groups-are successful in providing intermediation and its benefits to members,
while buffalo banks and rice banks are not. The policies identified as important to intermediation
and benefits: the provision of savings services, especially pledged savings accounts; emergency
services; and training and advice. Surprisingly, much publicized policies such as joint liability,
default consequences, or repayment frequency had no measured impacts.
Kochar, A. (1997). “Does Lack of Access to Formal Credit Constrain Agricultural
Production?: Evidence from Land Tenancy Market in Rural India”. American
Journal of Agricultural Economics 79(3): 754-764.
Lapenu, C. (2000). “Worldwide Distribution and Performance of Microfinance
Institutions”. Rural Financial Policies for Food Security of the Poor. Policy Brief
No. 6.
Abstract: How many microfinance institutions (MFIs) exist in the developing world? How well are
they performing? What is their role in household economies? Are they using their funds efficiently?
In 1999, the International Food Policy Research Institute (IFPRI) conducted a survey on MFIs in
Asia, Africa, and Latin America to offer a new in-depth analysis of the distribution and
performances of MFIs at the international level. This brief summarizes the results of the survey.
Ledgerwood, J. (1998). “Microfinance Handbook: an institutional and financial
perspective”. The World Bank.
Abstract: This handbook is one of the major products of the World Bank’s Sustainable Banking
with the Poor Project. It gathers and presents up-to-date knowledge directly or indirectly
contributed by leading experts in the field of microfinance. The book has three parts:
1. Issues in Microfinance Provision. This part addresses the broader considerations of
microfinance activities, including the supply of and demand for financial services, the
products and services that an MFI might offer, and the institutions and institutional issues
involved. Part I requires no formal background in microfinance or financial theory and is
likely to be of most interest to donors and those considering providing microfinance.
2. Designing and Monitoring Financial Products and Services. This part addresses more
specific issues in the design of financial services and the development of management
information systems. It will be of most interest to practitioners who are developing,
modifying or refining their financial products or systems and donors or consultants who are
evaluating MFIs or the services they provide. Readers of Part II need a basic
understanding of financial management.
3. Measuring Performance and Managing Viability. This part provides the tools for evaluating
the financial health of an MFI and a means of managing operational issues. The focus is on
financial intermediation not social intermediation. It is the most technical part of the book
and will be of primary interest to practitioners and consultants. Some understanding of
financial statements and financial analysis is required.
Littlefield, E. (2003). “Building Financial Services for the Poor” Finance for the
Poor, Manila: ADB, June 2003, Vol. 4, No.2, pp.2-4.
Abstract: About a billion people lack access to convenient, affordable, and appropriate financial
services. The Microcredit Summit estimates that microfinance institutions (MFIs) delivermicrocredit
to 38 million poor people and savings-deposit services to 65 million. While the figures are
staggering, the market penetration is still insignificant, compared with the large number of poor
85
and low-income households that need financial services. Moreover, growth is very slow;
microcredit outreach has increased by only around 4% among institutions that have been
reporting to the Microcredit Summit for the past several years. The urgent need is to remove
barriers and thereby scale-up more rapidly promising microfinance institutions. To reach the
hundreds of millions of people who need financial services, other delivery channels that can
complement MFIs must also be identified. The ultimate aim of expanding microfinance outreach is
to reduce the vulnerability of the poor by helping them increase incomes, build assets, and chart
their own paths out of poverty—with selfrespect, self-determination, and sustainability. The
microfinance industry has talked, for years, about scaling up. The starting point is to have a vision
that every poor country’s financial system works for the majority—the poor. The Economist and
the International Labour Organization cite that nearly 60% of Latin America’s and two thirds of
Africa’s nonagricultural employment are in the informal sector. In India, 9 out of 10 workers are in
the informal sector, contributing 60% of net domestic product and 70% of income. Scaling up
microfinance means looking beyond the status quo of a financial system that caters only to a
minority of the population while the majority remains unserved. It will require repositioning
financial services for the poor as a far more significant business than it has been perceived,
operating not on the margins of the formal financial systems or as a specialty niche within them—
but being at the core. Virtually in all developing countries, the collective productivity of the poor is
the core of countries’ wealth, employment, and labor. Throughout the 1980s and 1990s,
microcredit bucked conventional wisdom about financing the poor. First, MFIs showed that poor
people, especially poor women, repay their loans. Near perfect repayment rates were common
among the better programs—unheard of in most formal financial sectors and in the many failed
subsidized credit schemes of the 1970s. Second, the poor were willing and able to pay interest
rates that allowed MFIs to cover their costs, and even to profit. Third, these two features—high
repayment and cost recovering interest rates—permitted well-managed MFIs to achieve long-term
sustainability and to reach large numbers of clients. As a strategy combining massive outreach,
farreaching impact, and financial sustainability, microfinance is unique
among development interventions.
Littlefield, E. & Rosenberg, R. (2004). “Microfinance and the Poor: Breaking
Down Walls Between Microfinance and Formal Finance”. Finance and
Development, Vol. 41, No. 2. pp. 38-40.
Abstract: There is a dawning understanding that developing countries' financial systems need to
be more accessible to poor people and that there are practical ways to make this happen. All kinds
of financial institutions--regulators, mainstream rating agencies, commercial and state banks,
insurance companies, and credit bureaus--are starting to play a part in developing sound, inclusive
financial systems that serve the majority of poor countries citizens.
Matin, I. & Christen, R.P. (2001). “ASA’s Culture, Competition, and Choice:
Introducing Savings Services into Microcredit Institutions” Kampala: MicroSaveAfrica.
Martokoesoemo, S.B. (1994). “Small-scale Finance: Lessons from Indonesia”. In
Indonesia Assessment 1994: Finance as a Key Sector in Indonesia’s
Development, edited by R. H. McLeod. Canberra: Australian National University.
p. 292-313.
Mauri, A. (1998). “A New Approach to Institutional Lending and Loan
Administration in rural Areas of LDCs”. International review of economics and
Business (RISEC), Vol. XLV, No. 4, 1998.
Abstract: In most low-income economies, agriculture represents the main sector since it
contributes substantially to GDP, sustains a great share of total population and is an important
earner of foreign exchange. The lack of adequate financial services seems to be one of the major
constraints in expanding agricultural output. With particular reference to the institutional sector of
rural financial markets, given that collateral is not often available and/or not easily enforceable,
credit risk evaluation represents the core problem faced by banking industry doing business in a
peasant milieu. Conventional methods for assessing credit worthiness, mainly based on the
analysis of financial quantitative data are seldom applicable to a large segment of potential
customers, as these borrowers are mostly smallholders, belong to the informal sector of the
economy and are totally unable to provide adequate accounting evidence. Furthermore, in many
instances these potential small borrowers are not in a position even to make available the very
basic financial information to lending institutions. It is, therefore, clear that banks which intend to
86
extent their business to rural credit markets in LDCs have to design and adopt new methods in
loan administration, and particularly in loan appraisal. The increase in depth of creditworthiness
analysis does not represent, however, a workable solution in such a context because it is too costly
to predict and determine the extent of default risk for each borrower in relation to the average size
of rural loans in the segment of the market represented by smallholder farmers. Financial
institutions involved in this business should rather develop and implement new, more suitable,
methods and take full advantage of the available information, which is easy to be collected and
quite unexpensive to be handled because of its very simple nature. The paper introduces an
evaluation model of repayment capacity based on symptomatic information, which could replace,
when necessary, conventional information on profitability and customer's financial equilibrium. The
symptomatic information is mainly of qualitative nature and it is based on gathering of data such
as the kind of activity carried out by the customer, the location and the size of the farm, the level
of technology used, output dependence on climatic conditions, the flexibility of productive
structure towards technological innovation and market change. To some extent the symptomatic
model recalls the lender's decision making process which most likely occurs in the informal
market.
Miller, H. (2003). “Why microfinance institutions in Bolivia have virtually ignored
savings”. Small Enterprise Development, No. 14:3. ITDG Publishing.
Abstract: The benefits of savings mobilisation to both the institution and client are many, most
importantly they provide a sustainable source of funding for a financial institution and offer clients
a safe and liquid means in which to save. This paper examines Bolivia’s four main regulated MFIs –
BancoSol, Caja Los Andes, FIE and Prodem – and finds that they have mobilized few deposits
compared to banks, or compared to similar institutions elsewhere. It suggests that the availability
of cheaper and easier donor funding is a disincentive to raising capital from depositors, and
explains the internal obstacles to savings mobilization on the part of the MFIs. This paper is
extremely useful in landscaping the financial and political environment of MFIs in Bolivia and
proposes realistic recommendations to institutions, government and donors that will encourage
savings mobilisation in MFIs to the end that they may become robust deposit-taking microfinance
banks. At institution level there must be a commitment to capture savings and diversify away from
soft money and concessionary loans towards deposits in the capital base of the MFI. MFIs must
also invest in human and financial resources in market intelligence, more sophisticated cost
accounting systems, risk and liquidity management, training and incentives. Government level
reforms that loosen the reserve and reporting requirements in rural areas, support strategic
alliances between regulated and non-regulated entities, eliminate the value-added tax on interest
earned, reduce the I.D. requirement to open an account and allow minors to open savings
accounts will create an enabling environment for the mobilisation of savings by regulated MFIs.
Donors are advised to channel subsidies away from recapitalisation of loan portfolios towards
institution building and especially to assist MFIs in their capacity building efforts. Subsidies should
be used to support policy dialogue and regulatory reform and to develop strategic alliances
between regulated and non-regulated institutions. There is also a need for the Donor community
to improve coordination in both the development of donor strategy as well as monitoring the
impact of donor interventions.
Nagarajan, G. (1998). “Microfinance in the Wake of Natural Disasters:
Challenges and Opportunities”. Washington D.C.: Development Alternatives Inc.,
Prepared for MBP funded by USAID, March.
Abstract: Many microfinance organizations (MFOs) now working in disaster-prone countries have
been caught up in natural disasters as they have occurred and have become active players in postdisaster situations. This paper documents the experiences and experiments of MFOs that have
found themselves on the front line in natural disaster situations. The author synthesizes the
lessons learned from such situations and makes recommendations for donors, policy makers, and
MFOs. The information presented in this paper was collected through an extensive review of the
literature and targeted discussions with representatives of existing programs. The review placed
special focus on Bangladesh, India, Burkina Faso, and South Africa.
Robinson, M.S. (2001). “The Microfinance Revolution: Sustainable Finance for
the Poor”. New York and Washington, DC: Open Society Institute and World
Bank.
Abstract: This book offers readers: a detailed overview of the development of microfinance during
the 1980s through the 1990s; a global view of microfinance in the developing world; a thesis on
the future path of microfinance; a coherent theory about microfinance; details on a number of
important microfinance topics, such as informal moneylending and savings; a study of Indonesia,
87
with detailed analysis of Bank Rakyat Indonesia; and brief studies of many other microfinance
institutions in Africa, Asia, and Latin America.
Rutten, L. (2001). “Innovative Vehicles for Mobilizing Domestic Funds for
Agricultural Development”. ESCAP/ADB Joint Workshop on Mobilizing Domestic
Finance for Development.
Abstract: Agricultural production, processing and trade are generally relatively low-margin
operations, and at the same time, perceived by financiers as very risky. Physical collateral such as
land or real estate is often of little use in mitigating financiers’ risks – such collateral tends to be
very difficult to enforce. Not surprisingly, finance for agriculture can be difficult to find, and if
found, is expensive. Structured finance makes it possible to go directly to the roots of the problem
by isolating the various risks involved in the provision of a financing, and systematically mitigating
these risks. The changes as proposed under the Basel II agreement will make this more and more
relevant in the years to come. With Basel II (planned for 2005), solvency requirements for “risky”
exposures will increase dramatically. Most credits to emerging countries fall in this category,
unless when structuring techniques are used to mitigate the risks. As far as conventional bank
loans are concerned, after Basel II, there will be less lending to non-investment grade countries,
and what arrives will be more costly and more pro-cyclical. There are many possible applications of
structured finance for developing countries, from project- to pre-export finance, from financing oil
imports to using migrant remittances to obtain low-cost funds for agricultural lending. If banks are
at all interested in exploring the possibilities of structured finance for agricultural commoditie s,
they tend to focus on the financing of export crops, where they can capture offshore revenues to
ensure loan reimbursement. Some are willing to consider financing imports, tying this in with an
export chain (e.g., finance for the import of cotton yarn, reimbursable through the export of
textiles), or using physical possession coupled to confiscation insurance (in other words, they give
up control over the commodities only once they are paid for, eventually in up-country
warehouses). While there are certainly many possibilities in these areas, it leaves one area largely
overlooked: the possibility to mobilize domestic funds for agricultural development.
Wright, G.A.N. (1999). “The Case for Voluntary Open Access Savings Facilities
and Why Bangladesh’s Largest MFIs Were Slow to React”. CGAP Working Group
on Savings Mobilization, Eschborn, Germany: GTZ.
Abstract: Recently savings have risen to the top of the international development community's
agenda. There has been a sudden realization of, and interest in, the savings side of financial
intermediaries. Previously MFIs typically extracted savings from clients through compulsory
mechanisms, as there was a prevalent and powerful perception that the poor cannot save.
Compulsory savings systems often required members to deposit small token amounts each week
and levied more substantial amounts, usually expressed as a percentage of the loan taken, at
source from loans. These compulsory savings were then often "locked-in" until – or, in the case of
Grameen Bank until 1995, even if - members left the organization – thus denying them access to
their own money. Until recently, compulsory, locked-in savings systems, in one form or other,
were an extremely prevalent model throughout Asia, and the dominant one in Bangladesh. For a
detailed description of BRAC's and Grameen Bank's savings policies. However, these compulsory,
locked-in savings systems came under increasing pressure not only from the professionals
involved in financing, managing and reviewing MFIs but also from the clients themselves. As the
Consultative Group to Assist the Poorest (CGAP) in its Note 2 of October 1995 stressed: "Possibly
the greatest challenge in microenterprise finance is to expand the provision of savings services to
the poor." This is driven by the fact that, in the words of Marguerite Robinson (1995), "there is
substantial evidence from many parts of the world that: (1) institutional savings services that
provide the saver with security, convenience, liquidity and returns, represent a crucial financial
service for lower-income clients; and (2) if priced correctly, savings instruments can contribute to
institutional self-sufficiency and to wide market coverage."
88
ˆ Development Banks
Adams, D.W. (1995). “Reforming Development Banks”. Unpublished paper.
Department of Agricultural, Environmental, and Development Economics.
Columbus: The Ohio State University.
Adams D.W. & Marthans J.J. (1997). “The Rise and Fall of An Agricultural Bank
in Peru”. Abstracted from Benefits and Costs of Liquidating An Agricultural Bank
in Peru. Unpublished paper prepared for the Agency for International
Development by IMCC, Washington D.C.
ADB. (1997). “Report and Recommendations of the President to the Board of
Directors on a Proposed Loan to BAAC for the Rural Enterprise Credit Project in
the Kingdom of Thailand”. Manila: ADB.
Abstract: The Eighth National Economic and Social Development Plan (1997-2001) recognized that
low income in the rural sector arises from low land and labor productivity. The Government,
therefore, sought to upgrade agricultural technology, encourage high-value crops and livestock,
increase agricultural productivity, and help farmers to diversify into new enterprises. One of the
key constraints in promoting rural enterprises was the availability of medium- and long-term
loans. Accordingly, the BAAC Act was amended to enable the financing of rural enterprises owned
by farm families.7 The SFCP was the first ADB project in support of BAAC’s rural enterprise
lending, and its implementation was considered successful.8 BAAC emerged as the most
appropriate agency to promote rural enterprises in view of its (i) country-wide network, (ii)
significant outreach, (iii) in-depth knowledge of farm families’ income patterns, and (iv) ability to
adapt products and services to client demand. These provided the rationale to continue ADB
support to BAAC for the expansion of its enterprise loan portfolio. Similar to the SFCP in objective,
scope, and design, the RECP was expected to build on the momentum by expanding BAAC’s
enterprise loan portfolio toward creating employment in line with the Government’s efforts to
improve the living standards of the rural people. A loan of $200 million to BAAC for the RECP was
approved by ADB from its ordinary capital resources on 18 September 1997 for onlending to
enterprises. Specific objectives of the RECP were to (i) provide term loans to 54,000 rural
enterprises, including 20,000 new and 34,000 existing enterprises owned by farm families; and (ii)
improve loan processing, supervision, and customer services by BAAC for its rural enterprise
clients. An advisory TA (footnote 5) was approved to complement the second objective. The RECP
became effective on 26 November 1997 and was due for closing on 26 November 2002, but was
closed about three years ahead of schedule on 11 October 1999 after 47 percent utilization. BAAC
requested the closure due to weak credit demand, high liquidity, and the higher interest cost of
ADB funds.
BAAC (Bank for Agriculture and Agricultural Cooperatives). (1998). “Annual
Report 1997”. Bangkok: BAAC.
Bastiensen, J. (2000). “Institutional Entrepreneurship for Rural Development:
the Nitlapan Banking Network in Nicaragua”. In Ruerd Ruben, and Johan
Bastiaensen, Rural Development in Central America: Markets, Livelihoods and
Local Governance. pp. 151-70. New York: St. Martin's Press, Inc.
Abstract: It is noted that alternative financial organization-building has been thought of as an
instrument of social innovation. It is in the light of this hypothesis that the paper undertakes an
analysis of the experiences of Nitlapan (a banking network in Nicaragua) in building a more
'democratic' and entrepreneurially viable financial organization that serves small and medium sized
producers. The first section develops a brief tentative interpretation of the rural institutional crisis
and the need for institutional change. Subsequently, Nitlapan's financial network and its
governance structure are described. The concluding sections relate this governance structure and
its historical genesis to the inherited institutional environment and makes some comments on the
possibilities for institutional change by means of financial organization-building.
89
Barbieri, C. (2006). “Italian Cooperative Credit Banking Model: A New Approach
to International Cooperation for Development”. Savings and Development, issue
1.
Abstract: The article describes the Italian Cooperative Credit Banks experience in exporting a
traditional rural and development banking model to Ecuador in the most versatile way. This
original cooperation is based on a constant dialogue between the relative players with a view to
enrich the model with new activities and new partners. The scheme also sets an example of the
potentialities generated by a public-private and/or bi-multilateral approach within an international
Cooperation.
The article describes the Italian Cooperative Credit Banks experience in exporting
a traditional rural and development banking model to Ecuador in the most versatile way. This
original cooperation is based on a constant dialogue between the relative players with a view to
enrich the model with new activities and new partners. The scheme also sets an example of the
potentialities generated by a public-private and/or bi-multilateral approach within an international
Cooperation.
Berkhoff, A. (2003). “Microfinance in Rural India: Linking Self-Help Groups to
Cooperative Banks and Primary Agricultural Credit Societies”. unpublished
diploma thesis, IWW Universität Karlsruhe.
Bhatt, N. & Thorat, Y.S.P. (2001). “India's Regional Rural Banks: The
Institutional Dimension of Reforms”. Journal of Microfinance, Vol. 3, No.1.
Abstract: Efforts to reform India's failing Regional Rural Banks (RRBs) have had limited impact,
because reformers have paid little attention to the institutional dimensions of the problems facing
the banks. Few efforts were made to redesign the perverse institutional arrangements that gave
rise to incompatible incentive structures for key stakeholders, such as political leaders, policy
makers, stockholders, bank staff, and clients. We recommend that the next leg of reforms focus on
aligning the incentives of these stakeholders by giving greater importance to the RRBs' internal
organizational contexts and larger policy environments.
Bouman, F.J.A. (1988), "Pawnbroking as an Instrument of Rural Banking in the
Third World" Economic Development and Cultural Change, Volume 37, Number
1, October, pp. 69-89.
Boyer, D. & Dyer, J. (2003). “Country Case Study - Agricultural Bank of
Mongolia”. USAID / BASIS.
Abstract: The Agricultural Bank of Mongolia (Ag Bank) is the main provider of financial services in
the rural areas of Mongolia. It has the largest branch network in the country with 356 locations
and provides deposit and loan products in each location. Although in receivership in 1999 and
facing possible liquidation, this former state bank has been completely turned around and was
privatized through international tender to a major Japanese company in March 2003. Turnaround
efforts have resulted in the Bank disbursing more than 500,000 loans to date while maintaining an
arrears rate consistently below 1 percent and becoming the second most profitable bank in
Mongolia. This turnaround identified and mobilized the strengths of an existing institution to
rapidly disseminate desperately needed financial services to the rural areas as well as protect
access to the few existing financial services that many rural Mongolians already relied upon. This
paper describes the results and impact of the reform process, its loan and deposit strategies and
the challenges faced during the reform. It concludes with a review of the lessons learned and
recommendations for others involved in a similar process. One key lesson learned by Ag Bank was
the importance of marketing: focused research, strong brand promotion, and products responsive
to customer demand to provide an income stream to sustain the organization. Ag Bank's managers
used a combination of local knowledge from their branch managers, formal market surveys, and
experience from working in other developing countries.
Burgess, R. & Pande, R. (2004). "Do Rural Banks Matter? Evidence from the
Indian Social Banking Experiment". CEPR Discussion Paper No. 4211.
Abstract: Lack of access to finance is often cited as a key reason for why poor people remain poor.
This Paper uses data on the Indian rural branch expansion programme to provide empirical
evidence on this issue. Between 1977 and 1990, the Indian central bank mandated that a
commercial bank could open a branch in a location with one or more bank branches only if it opens
four in locations with no bank branches. We show that, between 1977 and 1990, this rule caused
90
banks to open relatively more rural branches in Indian states with lower initial financial
development. The reverse was true outside this period. We exploit this fact to identify the impact
of opening a rural bank on poverty and output. Our estimates suggest that the Indian rural branch
expansion programme significantly lowered rural poverty, and increased non-agricultural output.
Carree, M.A. (20023). "The Evolution of the Russian Saving Bank Sector During
the Transition Era”. ERIM Report Series Reference No. ERS-2000-27-STR.
Abstract: Following the 1988 banking reform in Russia there was an enormous increase in the
number of (registered) commercial banks. The Russian savings bank sector went through a period
of shakeout after the August 1995 interbank crisis. Large banks were able to expand their market
shares in the deposits market as a result of scale advantages and advertising. Entrants
unsuccessfully sought to gain market share by having high deposit rates.
CGAP. (1997). “State-owned Development Banks in Micro-finance”. Focus Note
No. 10.
Abstract: A state-owned village banking system in Indonesia (Bank Rakyat's desa unit) is
transformed into a successful microfinance institution. Success of the transition is traced to several
key factors, the absence of which would seriously constrain the reform of a similar, state-owned
development finance institution
Charitonenko, S.; Patten, R.H. & Yaron, J. (1998). “Indonesia, Bank Rakyat
Indonesia – Unit Desa 1970-1996. Case Studies in Microfinance. Sustainable
Banking with the Poor”. Washington DC: World Bank.
Choudhuri, A.H.M., et. al. (1996). “Interlinkage Between Banks, NGOs and
Informal credit Sectors for Rural Development”, Bangladesh Bank Parikrama
Volume xxi, Nos.1 & 2, March and June.
Choudhury, T.A.; Roy, M.K. & Rafiquddin, Q. (1994). “A Study on Anatomy of
Rural Bank Branches”. BIBM.
Clarke , G.R.G. & Cull, R. (1999). “Why Privatize? The Case of Argentina's Public
Provincial Banks”. World Development, Volume 27, Issue 5, May 1999, Pages
865-886.
Abstract: This paper analyzes detailed data on the pre- and post-privatization performance of
publicly-owned provincial banks in Argentina. It estimates fiscal savings associated with
privatization and describes the technical process that was used. The process included the creation
of residual entities for the liabilities that private buyers found unattractive. The paper argues that
the Fondo Fiduciario, which was created to convert the short-term liabilities of the residual entities
into long-term obligations, helped make these privatizations politically feasible. Given the
substantial number of state-owned banks in developing countries, this paper provides insight into
the desirability and feasibility of future privatizations.
Conroy, J.D. (2004). “International Leadership in Microbanking: APEC As a
Forum for BRI.” Paper presented at BRI International Seminar, 1 December,
Bali, Indonesia.
CD, (Co-operation for Development), (1995). “An NGO perspective on designing
credit schemes involving banks”. UK,
Cull, R. & Demirguc-Kunt, A. (2006). "Financial Performance and Outreach: A
Global Analysis of Leading Microbanks". World Bank Policy Research Working
Paper No. 3827.
Abstract: Microfinance contracts have proven able to secure high rates of loan repayment in the
face of limited liability and information asymmetries, but high repayment rates have not translated
easily into profits for most microbanks. Profitability, though, is at the heart of the promise that
microfinance can deliver poverty reduction while not relying on ongoing subsidy. The authors
examine why this promise remains unmet for most institutions. Using a data set with unusually
91
high quality financial information on 124 institutions in 49 countries, they explorethe patterns of
profitability, loan repayment, and cost reduction. The authors find that institutional design and
orientation matter substantially. Lenders that do not use group-based methods to overcome
incentive problems experience weaker portfolio quality and lower profit rates when interest rates
are raised substantially. For these individual-based lenders, one key to achieving profitability is
investing more heavily in staff costs - a finding consistent with the economics of information but
contrary to the conventional wisdom that profitability is largely a function of minimizing cost.
Deschamps, Jean-Jacques. (1999). “Rural Banking in Emerging Markets: Can it
Work?” Agricultural Finance and Credit Infrastructure in Transition Economies:
Proceedings of OECD Expert Meeting, Moscow, Feb. 1999., 148-58. Moscow:
O.E.C.D.
Abstract: Rural banking poses an inherently difficult set of challenges in emerging markets. This
paper points to lessons of experience drawn from successful (and mostly private) models that have
arisen as alternatives to direct government intervention in the sector over the past two decades. It
also outlines areas where government support to private initiative can still be helpful.
Desrochers, M. & Lamberte, M.B. (2003) "Efficiency and Expense Preference in
Philippines' Cooperative Rural Banks". PIDS Discussion Paper No. 12; CIRPEE
Working Paper No. 03-21.
Abstract: This paper attempted to test whether efficient cooperative rural banks (CRBs) have a
better control of their agency costs. We used two different concepts of efficiency, namely, cost
efficiency and alternative profit efficiency, and found somewhat different results from both
approaches. Using Stochastic Frontier Approach and Distribution Free Approach, we tested two
different propositions. The first proposition is that an adequate corporate governance scheme
should improve efficiency of CRBs. We failed to find very conclusive evidence that corporate
governance theories apply to the Philippines' CRBs. However, the results confirmed managers'
compensation theory and large stakeholders theory. The second proposition is that agency costs
should reduce efficiency of CRBs, and we found a much clearer relationship on that issue. As
expected, most efficient CRBs are characterized by a better control of agency costs. These results
are in accordance with previous studies on shirking behavior among mutual financial
intermediaries. We also found that rural CRBs are most profit-efficient, despite their somewhat
regular cost-efficiency, a manifestation that they are able to charge higher fees for the quality of
services they offer. Large CRBs are not able to pass their higher costs to customers through higher
fees. We found that small CRBs might have a better interest rate policy, that is, they offer lower
rates on both loans and deposits.
DeYoung, R.; Hunter, W.C. & Udell, G.F. (2003). "The Past, Present, and
Probable Future for Community Banks”. FRB of Chicago Working Paper No. 14.
Abstract: The large majority of banks and savings institutions are small and community-based. But
advances in information technology, new financial instruments, innovations in bank production
processes, deregulation, and increased competition have created a less hospitable environment for
community banks. The number of community banks is shrinking, along with their shares of loan
and deposit markets. By some measures both the number and market share of community banks
in the U.S. have approximately halved since 1980. Given these trends, it is natural to wonder if
the community bank business model will continue to be viable in the future. The specter of a
declining, or perhaps a disappearing, community banking sector has potentially serious
implications for local communities, small businesses seeking credit, and by extension the U.S.
economy. This paper presents a comprehensive view of the community banking sector in the U.S.
in three parts. Each of these three sections includes numerous citations to the recent academic
literature, and each is supported by a variety of data from the U.S. banking industry. First, we
review the past three decades of change in the U.S. banking system, with a special focus on how
deregulation, technological advance, and increased competitive rivalry have affected the size and
health of the community banking sector. Second, we use a strategic map approach to develop a
theory of how deregulation and technological change have affected the competitive viability of
community banks. The theory suggests that this change (a) has exposed community banks to
intensified competition that is likely to force many more of them out of the industry, but (b) has
also left well-managed community banks with a potentially exploitable strategic position. We show
that U.S. banking data over the past three decades supports these theoretical conclusions. Third,
we consider the number of community banks that will remain viable in the future. Projecting the
future number and size distribution of commercial banks after the U.S. banking industry has fully
adjusted to deregulation is a treacherous exercise, and we do not pretend to be able to make
92
accurate point estimates. Rather, we consider the recent financial performance of community
banks relative to large banks, and, based on straightforward market principles, suggest which
types of community banks, and how many of each type, are most at risk and least at risk going
forward.
Dressen, R.; Dyer, J. & Northrip, Z. (2002). “Turning around state-owned banks
in underserved markets”. Small Enterprise Development, Volume 13, Number 4,
1 December 2002, pp. 58-67(10).
Abstract: Many state-owned retail banks in developing countries do not operate profitably and are
reliant on repeated financial bail-outs from their governments and from donors. Given this
situation, donors are often more inclined to invest in new MFIs than to attempt to revive
problematic old ones. However, this article describes how external teams may be brought in to
manage the restructuring of state-owned retail banks with some success. Two cases are described,
Microfinance Bank of Tanzania and the Agricultural Bank of Mongolia. In both cases the banks'
wide branch network was seen as a useful asset through which profitable new products and
services could be sold to rural clients. The article describes the restructuring in each case, outlines
the pre-conditions for successful restructuring of this kind (including a commitment on the part of
the government to privatization of the bank), and discusses the lessons learned.
Dugan, M. (2004). “Can a Government Loan Work for Microfinance? IFAD’s
Funding of the Agricultural Cooperative Bank of Armenia”. Case Studies in Donor
Good Practices, No. 15.
Abstract: This Donor Good Practices note provides a case study documenting how the International
Fund for Agricultural Development creatively used a government loan to support the Agricultural
Bank of Armenia, enabling the institution to expand in rural provinces, strengthen its capital base,
and become the largest bank in Armenia. In late 1996, the International Fund for Agricultural
Development (IFAD) initiated the Northwest Agricultural Services Project (NWASP) in Armenia. The
objective of the four-year project was to develop sustainable agricultural support services for
40,000 people living in three rural provinces of northwest Armenia. At about the same time, the
Agricultural Cooperative Bank of Armenia found itself at a critical juncture. Founded with European
Union support, the bank had been operating with moderate success for just a year and was ready
to implement a strategic expansion. The objectives of the donor and the retail institution aligned
beautifully. The two organizations persuaded the Armenian Ministry of Finance to accept a creative
use of an IFAD loan that made sense for a growing microfinance operation. As a result, a US $4.5
million credit line was restructured into a loan and a grant for ACBA, allowing the bank to get its
footing, reach self sufficiency, and expand nationwide. By 2000, ACBA had earned the distinction
of “Bank of the Year in Armenia” from the Financial Times. As of December 2003, the bank had
32,640 customers and eight branches throughout the country - the largest geographical coverage
of any bank in Armenia. Of US $21 million in its outstanding portfolio, US $8.8 million were
agricultural loans. (In the rural provinces, 95 percent of ACBA’s clients are farmers.) ACBA had
total assets of approximately US $31 million, total equity of approximately US $9.5 million, and a
US $ 0.8 million profit for 2003. This short paper includes a discussion on the four main reasons
for the success of IFAD’s funding of ACBA – ACBA found a creative way to make the IFAD loan
work for sustainable microfinance and the Government of Armenia, the priorities of IFAD and ACBA
were aligned, ACBA followed commercial practices, and ACBA’s use of the cooperative structure in
credit delivery, ensured high portfolio quality.
Egger, P. (1986), "Banking for the Rural Poor: Lessons from some Innovative
Savings and Credit Schemes". International Labour Review, Vol. 125, Number 4,
July-August, pp. 447-462.
Firpo, J. (2006). “Banking the Unbanked: Technology’s Role in Delivering
Accessible Financial Services to the Poor”. SEMBA Consulting.
Abstract: How can microfinance have macro impact in the world such that billions of today’s urban
and rural poor gain access to financial services? By undertaking 3 pilot studies in Uganda, a
consortium of private and public actors sought to determine the role technology could play in
increasing the reach of microfinance. This paper discusses the findings of the studies.It begins by
highlighting the problem and considering the question: What are the problems keeping the
industry from achieving greater scale? The study concludes that the key issues relate to overdependence on donor funds for wholesale finance and operating costs, the absence of consistent,
sector-wide operating standards and business practices, fragmentation within the sector, technical
challenges and high transaction costs, and the need for flexibility to offer diverse financial services
93
that meet local needs and priorities.The paper sets out how the actors involved in the study then
designed a technological solution in an attempt to overcome these issues identified. The
technology was designed to process loan payments, savings deposits, withdrawals and transfers,
based on a combination of smart-cards, point-of-sale terminals, a transaction server and
connectors that send data directly to the MFIs’ accounting and general ledger systems. Three key
lessons that were drawn from the study are discussed in detail by the paper: 1. Technology
combined with business process change brings the greatest return; 2. Emerging markets require
innovative, appropriate technologies that are designed for scale; 3. The costs associated with
building the infrastructure to support this enabling technology is too high for MFIs to go it alone.
Fitchett, D. (1999). “Bank for Agriculture and Agricultural Cooperatives (BAAC),
Thailand”. GTZ - CGAP Working Group on Savings Mobilisation.
Abstract: BAAC has come to be internationally recognised as one of the few specialised,
government-owned rural finance institutions which has been successful in carrying out its mandate
without government subsidies. Its loan outreach to Thailand's rural poor and its savings
mobilisation performance are impressive. This case study reviews the macroeconomic and financial
sector context of the bank and undertakes a substantial institutional analysis. Exploiting the
comparative advantage of its branch network and the already close links it had developed with its
client population through lending programmes, BAAC developed its deposit base remarkably
quickly, providing both standard and tailor-made savings instruments to its clients. BAAC has
demonstrated to other Thai institutions that lending in rural areas can be a profitable activity, thus
encouraging an increase in lending by other banks. The author suggests that the focus of BAAC's
management on the "bottom"line and a corporate culture that recognises and rewards cost
effectiveness and efficiency are principal elements in accounting for BAAC's relative success as a
financial institution despite its character as a state-owned bank.
Gonzalez-Vega, C. & Graham, D.H. (1995). “State-Owned Agricultural
Development Banks: Lessons and Opportunities for Microfinance”. Rural Finance
Program, Department of Agricultural Economics, Ohio State University,
Colombus, Ohio.
Abstract: Examines the potential role of state-owned agricultural development banks as providers
of microfinancial services. It Finds that:
•
•
•
•
•
•
•
•
successful restructuring of development banks can only occur in an environment of
structural adjustment, with macroeconomic and financial liberalisation
a healthy and dynamic agricultural sector facilitates the emergence of a reformed rural
development bank
most successful development bank reforms have begun with the shift from outside (donor)
to internal (deposit-based) funding
decision-making should be decentralised to the branch level, to take advantage of local
information for screening and monitoring
portfolio diversification should be sequential to decentralisation and deposit mobilisation
an important legal change required to implement delegated decision-making and
performance-based remuneration for branch managers and loan officers is the ability to
hire, promote, and fire staff free from civil service regulations
eliminating the role of any non-financial ministry on the board appears to be a necessary
though not a sufficient condition to avoid strategic behaviour at the board level
recapitalization should be considered following partial or complete cleaning up of the
balance sheet
Concludes that:
•
•
•
•
strategic implementation issues would have to reflect initial conditions in each country
it is important to understand the political economy context of the transformation
unless strong coalition favours restructuring, nothing can be accomplished. An important
task for donors is to promote and nurture such coalitions
once agreement has been reached, the donors most important contribution would be
technical assistance for the upgrading of policies, technologies and organisational design.
94
GTZ. (1997). “BAAC’s Joint Liability Group: Access to Reach the Poor”. Paper
presented at the Regional Workshop on the Linkage Program, Focus:
Assessment of Linkage Projects in Asia, sponsored by APRACA and GTZ,
Denpasar, Indonesia, 3-6 December.
Haberberger, M.L.; Wajananawat, L. & Kuasakul, N. (2003). “The Challenge of
Sustainable Outreach: The Case of Bank for Agriculture and Agricultural
Cooperatives (BAAC).” Eschborn, Germany: GTZ.
Abstract: Every three to four years it is not only interesting, but also useful, to step back from the
day to day work to rethink the case of the Bank for Agriculture and Agricultural Cooperatives
(BAAC). In 1992, Jacob Yaron from the World Bank identified BAAC as one of the three most
successful rural finance institutions in the world, while in 1999, Klaus Maurer analysed the BAAC
within the context of agricultural bank reform for an IFAD working paper. Now, for a third time,
the case of BAAC is addressed, but now, in the context of sustainable outreach. This third case
study is jointly prepared by GTZ’s Marie Luise Haberberger and, from the BAAC, Luck
Wajananawat and Nipath Kuasakul. Previous studies were of great help and have served as
important reference material for the current assessment. The BAAC is a “front rider” in outreach:
92% of farm households in Thailand have been reached directly and indirectly by BAAC. But
outreach is only meaningful, if it remains sustainable. This case study addresses critical issues that
present an on-going challenge to maintaining sustainable outreach and to face the future.
Hashemi, S.M. (1997). “Building up Capacity for Banking with the Poor: The
Grameen Bank in Bangladesh”. in Hartmut Schneider (eds): Microfinance for the
Poor?
Heussen, H.; Breuer, B. & Wellman, L. (1987). “Promotion of Self-Help by
Savings Banks: A Dialogue Programme”. Bonn: Deutsche Stiftung fur
internationale Entwicklung (DSE), 143 p.
Hossain, M. & Shahiduzzaman, M. (2002). "Development of Non Bank Financial
Institutions to Strengthen the Financial System of Bangladesh”. Quarterly
Journal of Bangladesh Institute of Bank Management, Vol. 28, No. 1, March.
Abstract: Non-bank financial institutions (NBFIs) represent one of the most important parts of a
financial system. In Bangladesh, NBFIs are new in the financial system as compared to banking
financial institutions (BFIs). Starting from the IPDC in 1981, a total of 25 NBFIs are now working in
the country. As on June 30, 2001 the total amount of paid up capital and reserve of 24 NBFIs
stood Tk.6901.8 million (BB, 2002). The NBFIs sector in Bangladesh consisting primarily of the
development financial institutions, leasing enterprises, investment companies, merchant bankers
etc. The financing modes of the NBFIs are long term in nature. Traditionally, our banking financial
institutions are involved in term lending activities, which are mostly unfamiliar products for them.
Inefficiency of BFIs in long-term loan management has already leaded an enormous volume of
outstanding loan in our country. At this backdrop, in order to ensure flow of term loans and to
meet the credit gap, NBFIs have immense importance in the economy. In addition, non-bank
financial sector is important to increase the mobilization of term savings and for the sake of
providing support services to the capital market. The focus of this paper is to highlight the
necessity and importance of NBFIs to strengthen the financial system for rapid economic
development of the country.
IFPRI. (2002). “Banking on the Poor: Unleashing the Benefits of Microfinance”.
Abstract: This policy brief is designed to help policymakers and practitioners understand the
financial services needed by the poor. It is framed within lessons learned from a five-year IFPRI
research program that examined, among other issues, the roles government should play in
providing financial services to meet the needs of the poor. Insights presented here are based on a
series of detailed household surveys conducted in nine countries of Africa and Asia: Bangladesh,
Cameroon, China, Egypt, Ghana, Madagascar, Malawi, Nepal, and Pakistan. Microfinance, once a
colossal leap of faith for many governments and donors, is now considered a viable business.
IFPRI’s research shows that it is most successful when designed with a tight and mutually
reinforcing fit between the larger financial environment, the mechanism of service design and
delivery, and the particular needs of the poor that microfinance institutions serve.
95
Ikpeleu, I. (2002). “The Nigerian Agricultural and Cooperative Bank Limited” in
Gerhard Coetzee (ed.) Agricultural Development Banks in Africa: The Way
Forward, Nairobi: African Rural and Agricultural Credit Association.
Jackelen H.R. (1999). “Building banking from below in Bangladesh”. Small
Enterprise Development, Volume 10, Number 3, 1 September 1999, pp. 2937(9).
Abstract: In Bangladesh, a poorly performing formal financial sector runs parallel to a burgeoning
and innovative microcredit industry run by NGOs. The success of the group-based microcredit
formula originating with Grameen Bank is well-known; the expansion of Bangladesh's microcredit
industry is also partly the result of the supervisory system created by the apex organization, PKSF.
As concern increases about how to cater for the financial needs of the poorest, who are unable to
benefit from microcredit, attention is focused on savings accounts to provide poor people with
security. This article proposes the establishment of a savings guarantee foundation in Bangladesh
which would have the function of regulating savings accounts with NGOs, guaranteeing people's
savings with certified NGOs, and researching appropriate savings and insurance products for poor
people.
Kamewe, H. & Koning, A. (2003) “The Experience of Savings Banks”. The
MicroBanking Bulletin, Issue No. 9, July 2003, pp. 37-42.
Ketkar, K.W. (1993). “Public sector banking, efficiency and economic growth in
India”. World Development, Volume 21, Issue 10, October 1993, Pages 16851697.
Abstract: This paper develops a framework that integrates Harrod-Domar growth model and
McKinnon-Shaw Hypothesis via Molho's dynamic adjustment mechanism. The model is used to
determine the impact of bank nationalization through aggressive bank branch expansion programs
and priority sector credit allocation on India's financial savings, investment, productivity and GDP.
The empirical findings indicate that the bank nationalization policy has been a mixed blessing. The
aggressive bank branch program since 1969 resulted in an increased in savings, investment,
productivity of capital and GDP, however, the priority sector credit allocation policy did not fully
achieve its desired goals.
Khalily, M.A.B. (1991). "An Analysis of Rural Banks in Developing Countries:
The Case of Bangladesh", Unpublished Ph.D Dissertation, The Ohio State
University, USA.
Khalily, M.A.B.; Huda, R. & Lalarukh, F. (1997). “On the Behavior of Agricultural
Credit in Bangladesh: The Role of Bangladesh Bank”. Dhaka University Journal of
Business Studies 18(1): 131-152.
Khalily, M.A.B. (1997) "A Note on the Autonomy and Merger of BKB and
RAKUB", mimeo, February
Krahnen, J.P. & Schmidt R.H. (1994). “Development Finance as Institution
Building: A New Approach to Poverty- Oriented Banking”. Westview Press
Boulder, Colorado.
Kropp, E.; Marx, M.T.; Pamod, B.; Quinones, B.R. & Seibel, H.D. (1989). “Linking
Self-help Groups and Banks in Developing Countries”. Eschborn, GTZ, & APRACA,
Bangkok.
96
Lepp, A. (1996). “Financial products for MSEs - the municipal savings and loan
banks of Peru”. Small Enterprise Development, Volume 7, Number 2, June 1996,
pp. 15-25(11).
Abstract: What small business people and microentrepreneurs often find to be lacking in
conventional banking services are, among other things, quick and simple procedures, and access
to loans for household uses. The municipal savings and loan banks of Peru have products that go a
long way to meeting both needs. This article describes the structure of the MSE sector in Peru, and
then outlines the financial products of the savings banks that have been designed to meet the
needs of this sector. The article then describes the take-up of these services by the target group of
MSEs, and suggests that these services can be provided on a cost-covering basis.
Levy Yeyati, E.; Micco, A. & Panizza, U. (2005). “State-Owned Banks: Do They
Promote or Depress Financial Development and Economic Growth?” background
paper prepared for the conference Public Banks in Latin America: Myths and
Reality, Inter-American Development Bank, Washington, D.C., Feb. 25, 2005.
Abstract: This paper surveys the theoretical and empirical literature on the role of state-owned
banks and also presents some new results and a robustness analysis. After having discussed
whether there is a theoretical justification for the presence of state-owned banks, the paper
focuses on their performance. Three basic facts emerge: (i) state-owned banks located in
developing countries are characterized by lower profitability than comparable privately owned
banks; (ii) there is no evidence that the presence of state-owned banks promotes economic
growth or financial development; and (iii) the evidence that state-owned banks lead to lower
growth and financial development is not as strong as previously thought. The paper concludes that
we still do not know enough to pass a final judgment on the role of state-owned banks and hence
more research is needed.
Madeley, J. (1984), "Giving Credit where it's Due: Banking on the Landless in
Bangladesh". Ideas and Action, Volume 6, No.159.
Maurer, K. & Seibel, H.D. (2002). “Agricultural Development Bank Reform: The
Case of Unit Banking System of Bank Rakyat Indonesia (BRI).” Rural Finance
Working Paper No. B5, Doc. No. 48881, Rome: International Fund for
Agricultural Development.
Maurer, K. 2004. “The Role of BRI Units in Capital Accumulation and Rural
Savings Mobilization”. Paper presented at BRI International Seminar, 1
December, Bali, Indonesia.
Mushinski, D. (1999). “An Analysis of Offer Functions of Banks and Credit Unions
in Guatamala”. Journal of Development Studies 36, no. 2: 88-112.
Abstract: Economists have sought to identify institutions, which might fill the gap in household
access to credit arising from rationing by formal lenders. Credit unions have been identified as
institutions, which might use informational and monitoring advantages to fill that gap. Using
information on household perceptions of their access to credit, this article analyses the impact of
certain credit unions on the access to credit unions in Guatemala. Regression results indicate that
credit unions serve markets unserved by formal lenders and that information on household
perceptions of their access to credit is important in making inferences about lender lending
activities.
Muraki, T.; Webster, L. & Yaron, J. (1998). “Thailand, BAAC – The Thai Bank for
Agriculture and Agricultural Cooperatives,” Case Studies in Microfinance.
Sustainable Banking with the Poor. Washington, DC: World Bank. April.
Muraki, T.; Webster, L. & Yaron, J. (1998). “The Thai Bank for Agriculture and
Agricultural Cooperatives (BAAC): Outreach and Sustainability through 1996”.
Unpublished paper. Washington DC: World Bank.
97
Mutunhu, T.E. (2002). “Agribank of Zimbabwe” in Gerhard Coetzee (ed.),
Agricultural Development Banks in Africa: The Way Forward, Nairobi: African
Rural and Agricultural Credit Association.
Nelson, C.; MkNelly, B.; Stack, K. & Yanovitch, L. (1996). “Village Banking: The
State of Practice”. Seep Network.
Abstract: This book begins with a summary of the historical evolution of village banking, including
a statistical profile of featured programs. It then examines the methodology in detail, comparing
the original model to its numerous adaptations. Organizational development issues and challenges
for village banks, implementing agencies and northern NGOs are discussed with a special focus on
self-sufficiency. The book also includes an analysis of the impact of village banking based on
existing evaluation techniques. The final section presents the principles and standards that the
practitioner community has adopted in an effort to establish guidelines that will best serve the
long-term needs of their clients.
Outtara, K.; Gonzalez-Vega, C. & Graham, D.H. (1999). “Village Banks, Caisses
Villageoises, and Credit Unions: Lessons from Client-Owned Microfinance
Organizations in West Africa”. USAID Microfinance Best Practices Case Study.
Abstract: This case study is a component of the research project on Client-Owned Microfinance
Organizations: Lessons from West Africa, conducted by the Rural Finance Program at The Ohio
State University (OSU) under the Microfinance Best Practices (MBP) Program. The main objective
of the study has been to assess the strengths and weaknesses of mutualist financial organizations
in the delivery of microfinance services, both loans and deposit facilities, in comparatively poor
countries. The common thread that binds several types of mutualist financial organizations is that
they are client-owned institutions. Some of them are financial cooperatives developed along
traditional credit union designs; others are village-banking systems sponsored by international
nongovernmental organizations (NGOs), and still others are village-owned savings and credit
associations, including the caisses villageoises that operate in several African countries. The
present case study conducts a preliminary comparative analysis of these three institutional forms.
Owens, J. & Agabin, M.H. (2006). “Experiences of the Philippines’ Rural Banks in
Microfinance”. Finance for the Poor, Vol. 7, No. 2.
Abstract: The Philippines has a total population of about 85 million people with per capita income
of $1,271 in 2005. According to the Asian Development Bank’s estimates, about 36 million
Filipinos, or 49% of the country’s total population were living below the $2-a-day poverty line in
2003.1 A large percentage of the poor are engaged in microenterprises to support themselves and
their families. The Government of the Philippines (GOP) has emphasized microfinance as one of
the important tools for helping reduce poverty. As part of this initiative, the GOP has been
encouraging the private sector, including the formal banking sector, to introduce and offer
microfinance services. Since the 1990s, the GOP and regulatory authorities continue to introduce
policy reforms in support of establishing and maintaining an appropriate enabling environment for
the private sector, especially banks, to actively offer commercial microfinance services.
Painter, J. & MkNelly, B. (1999). “Village Banking Dynamics Study: Evidence
from Seven Programs”. Journal of Microfinance, Vol 1, No.1.
Abstract: The primary question examined in this study is whether client loans grow or stagnate
over time. Loan growth is important to financial sustainability and is also a proxy for positive
impact. The relationship between loan growth and a variety of factors—program loan and savings
policies, site selection, membership dynamics-are explored in the context of seven village band
programs. The study concludes that on average, loan size did not stagnant but increased steadily,
although at a rate lower than the original village bank model projections. Only programs that
allowed non-poverty level loans (loans above US$300) approached the original loan growth rate.
Other factors positively associated with more rapid loan growth were urban site selection and
restricted internal fund policies. Membership turnover—influx of new clients and drop-out of
original clients—was also evident across all programs, dampening loan growth rates by
approximately 25%. While factors external to the program affect these dynamics, program policies
can play an important role in stemming the drop-out rate. In early loan cycles, initial program
promotion and orientations need to clearly articulate program requirements and terms. In later
loan cycles, policies pertaining to savings access, meeting frequency and membership
requirements may require flexing to enhance clients’ incentives to remain.
98
Patten, R.H. & Rosengard, J.K. (1991_. “Progress with Profits: The Development
of Rural Banking in Indonesia”. California, USA: International Center for
Economic Growth and Harvard Institute for International Development.
Patten, R.H.;Rosengard, J.K. & Johnston, D.E. Jr. (2001). “Microfinance Success
amidst Macroeconomic Failure: The Experience of Bank Rakyat Indonesia During
the East Asian Crisis”. World Development, Volume 29, Issue 6, June
2001, Pages 1057-1069.
Abstract: The Bank Rakyat Indonesia (BRI) unit system is recognized as one of the largest and
most successful microfinance institutions in the world. Indonesia has been more drastically
affected by the East Asian monetary crisis than other countries in the area. It is therefore
worthwhile looking at the BRI experience during the crisis—not only the experience in
microenterprise credit, but also in small, medium and corporate credit and in savings mobilization.
The comparative performance of different parts of BRI during the East Asian crisis suggests
essential features in the future design of sustainable microfinance institutions, products, and
delivery systems.
Peachy, S. & Roe, A. (2006). “Access to Finance – What Does it Mean and How
Do Savings Banks Foster Access”. World Savings Bank Institute, Perspectives
No. 49.
Abstract: The purpose of this study is to give an overview of the importance of access to finance
for all and to record the main obstacles to access in different parts of the world. It also attempts to
create a coherent framework for analysing the available data on access and to link this through to
indicators of wider economic development. Having surveyed the nature and dimensions of access
(or lack of it), the study goes on to review public and banking sector initiatives to improve access
to finance and then looks at the critical role of the savings bank movement – socially committed
retail banks, like savings banks, postal savings banks and community banks – in the provision of
financial services to all strata of the population in urban and more remote areas. Finally, a policy
agenda is developed for both the financial institutions that must deliver access and the public
sector that must create the right environment for doing so. The study concludes with the following
viewpoints:
•
•
•
•
•
•
Access is an important issue but it has to be understood differently from the related issue
of exclusion, as the solutions are different.
The savings bank movement has an instinctive sympathy for improving access and this
study shows how important the movement is to sustaining what access there already is.
At newly identified levels of supply, savings banks account for three quarters of the 1.4
billion accessible accounts provided across developing and transition economies.
Moreover an economy is very unlikely to be approaching full access unless it has a strong
savings bank movement or other proximity banking presence.
Regulators need to recognise that the governments they serve may have more at stake in
improving access than commercially run banks. Regulation should be fine-tuned
accordingly.
As always the performance of banking systems cannot be understood in isolation from the
systems of political economy within which they operate. Governments are likely to do more
to improve access by improving the foundations of civil society than by trying to mandate
access and interfere with product design.
Poapongsakorn, N.; Siamwalla, A. & Charoenpiew, P. (1998). “The Rural Finance
Market in Thailand and the Role of the Bank for Agriculture and Agricultural
Cooperatives”. In The Rural Finance in Thailand, edited by Nipon Poapongsakorn
et al. Bangkok: Thailand Development Research Institute. p. 1-42.
Quinones, B.R. (1997). “Evaluation of the Linkage Banking Programme in India”.
Unpublished Paper. Bangkok: Asia Pacific Rural and Agricultural Credit
Association.
99
Rao, G. (1995). “Reaching the Poor: Strategies of Canara Bank”. Paper
presented at the NABARD-APRACA International Seminar on Development of
Rural Poor Through the Self Help Groups. Bangalore, India.
Reille, X. & Gallman, D. (1998). “The Indonesia People’s Credit Banks (BPRs)
and the Financial Crisis”. Paper presented at the Second Annual Seminar on New
Development Finance, Goethe University of Frankfurt, 21-25 September.
Reijmerink, J. (2003).”The Agricultural Cooperative Bank of Armenia: The
Success Story of Cooperative Rural Finance”. Unpublished paper, IFAD.
Robinson, M.S. (2005). “Why the Bank Rakyat Indonesia has the World's Largest
Sustainable Microbanking System”.
Abstract: This paper, which was first presented at BRI’s International Seminar in December 2004,
outlines the Bank Rakyat Indonesia’s journey from failed credit provider to successful
microbanking institution, a passage of over three decades. It provides an overview that will be of
interest to other finance institutions, and especially those which have their roots in government
initiatives. BRI began in 1970 as part of an Indonesian government plan to intensify rice
cultivation. Composed of 3,600 units which acted as branches under a supervising branch, they
provided subsidized credit to rice farmers and other agricultural enterprises. While the rice
intensification program succeeded, the credit component failed: this was due to bad planning and
poor thinking, mingling government-mandated loan terms and ceilings with inefficiency, a high
loan default rate, a badly trained and uninterested staff, and a system prone to abuse and
corruption. Calls to shut BRI down were not heeded by the government, which instead transformed
BRI into a commercial microbanker. Various preconditions aided this transformation. First,
Indonesia had enjoyed two decades of economic and political stability, second, oil wealth had been
spread around in rural areas in the 1970s, leading to increasing demands for banking for the rural
population, and third, the economics team of the Ministry of Finance began to acknowledge the
importance of microfinance. Perhaps a more important precondition, however, was the
government’s correct forecast of a decline in oil prices in the early 1980s, which set the stage for a
greater private-sector role in savings and investment. In 1983, these factors came together to
produce a new strategy for BRI which would transform it into a large-scale microbanking
institution: recognising that its 3,600 units could form the nucleus of a banking system if properly
managed and with skilled and committed management, with a commercial loan portfolio funded by
public savings whose profits would built BRI’s longterm viability as a microbanker. By 1986
commercial microbanking (loans and savings services) were being offered at all units throughout
Indonesia, with increased outreach and growing profits. The government spurred this change in
part with a wide-ranging financial deregulation in 1983, which permitted state banks to set their
own interest rates, and in part by guaranteeing unit funding for only two years, after which, if the
unit had not become profitable, it would be closed. Units were given a fresh start, with some new
cash equity and unburdened with liabilities, which were transferred to the supervising branches. A
new corporate culture was introduced, emphasising cooperation among staff members, good staff
training, and performance-based incentives. Strong leadership from the chief administrative
figures was a key element in the successful transition. The over twenty-year-long life of BRI as a
microbanking institution receives the bulk of the author’s remaining attention. She stresses that
the institution continued to grow, even during the difficult years following the start of the east
Asian financial crisis in 1997. As many of BRI’s clients did no business abroad, they were only
indirectly affected by the massive devaluation of the Indonesian rupiah. Moreover, the almost
fifteen years of BRI’s successful functioning as a microbanker gave it such client confidence that
new clients actually deserted their failing banks during the crisis, to transfer their money to BRI.
Another reason for this institution’s success is its emphasis on savings rather than on loans, which
ensures it has a strong basis upon which to mobilise funds. From here the author then speculates
about the emerging global microfinance industry, and compares BRI favourably with Bangladesh’s
famous Grameen Bank. This history of the BRI provides salutary lessons for successfully reforming
a financial institution:
•
•
•
•
give strong leadership;
cultivate an awareness of the importance of microfinance;
train staff and encourage them to get involved in the spirit of the enterprise; when
appropriate, stress savings so as to provide stability for loans; and
strive to migrate from government financial support to viable economic independence as
soon as possible.
100
Sacay, O.J.; Randhawa, B.K. & Agabin, M. (1996). “The BAAC Success Story”.
Financial Sector Development Department, World Bank, Draft, Washington, D.C.
1996.
Sankaranarayanan, R. (1998). “A Study of the Problems of Over Dues and
Recovery Performance of RRBs in Tamil Nadu State”.Unpublished Ph.D.
Dissertation. Tamil Nadu: Gandhigram University.
Satish, P. & Gopalakrishna, C.K. (1997). “Viability of Rural Banking”. Economic
and Political Weekly: 2711-16.
Abstract: The article considers the viability of rural banking and looks at the macro-level
components of the financial structure of rural banking institutions. The profitability of rural
commercial bank branches is studied using a sample of branches in four districts of Maharashtra.
It is concluded that there is nothing intrinsically non-viable about rural banking operations or rural
finance institutions. Suggestions are made for making rural banking operations or existing nonviable institutions or units viable.
SBP - World Bank. (1998). “FINCA: Insights from a unique approach to village
banking [in Costa Rica]”.
Abstract: FINCA Costa Rica has been both a leader and a non-conformist in village banking. As one
of the first village banking examples in Latin America, the program offers valuable lessons to other
village banking institutions. While still retaining the FINCA name, FINCA Costa Rica has split from
FINCA International, the US-based NGO that is credited with developing the village banking
methodology. Some of the unique features of FINCA Costa Rica include: a minimalist approach to
microfinance, a predominantly male, literate, agriculturally based target group, individual loans, a
legal ownership structure of each village bank with voting based on percentage ownership of
equity shares, relatively larger and longer loans, and legal penalties for default. The program
leadership has shown a great willingness to adapt the methodology as problems have surfaced
over the years. Given FINCA Costa Rica's history and willingness to adapt, it offers unique insights
into the problems and potential of village banking. The following paper presents an overview of
FINCA Costa Rica1 and examines ten lessons that can be learned from FINCA's unique approach to
village banking.
Schrieder, G.R. & Theesfeld. I. (2000). “Improving bankability of small farmers
in northern Vietnam”. Savings and Development 24, no. 4: 385-403.
Abstract: Access to financial services has proven to be important for poverty reduction in
developing countries. Clearly, it is the poor who face considerable rationing with respect to the
financial market. The reasons are manifold and can be associated with the demand and supply side
of financial intermediation. They all result in higher transaction costs (TCs) or a reduced riskbearing capacity. TCs include the noninterest expenses incurred by both lenders and borrowers in
making (obtaining), servicing (implementing), and collecting (repaying) loans. The term 'riskbearing capacity' describes the borrowers' capacity in terms of income, wealth and skill to cope
with the risk of loosing the transaction costs if the credit application is refused or a failing of the
debt-financed investment. The term 'bankability' has entered the arena of development
economics. Advocators of the notion that access to financial services reduces poverty claim that
improving bankability supports credit access. From the perspective of the potential client, the term
bankability comprises all aspects that increase the risk-bearing capacity and/or reduce the costs of
acquiring a financial service, particularly credit. One finding in this paper is that a large proportion
of the population in rural Vietnam refrains from becoming indebted not because of the TCs but
because of their low risk-bearing capacity. Employing participatory research tools, one solution
developed by small-holders in rural northern Vietnam was to set up an insurance fund to increase
the risk-bearing capacity while being indebted and thus become bankable.
Seibel, H.D. & Schmidt, P. (2000). “How an Agricultural Development Bank
Revolutionized Rural Finance: The Case of Bank Rakyat Indonesia”. Cologne,
Germany: University of Cologne.
Abstract: The case of BRI is evidence that, in a deregulated policy environment, a governmentowned agricultural development bank can (a) be transformed into a highly profitable, self-reliant
financial intermediary, and (b) turn into a major microfinance provider, offering carefully crafted
microsavings and microcredit products to low-income people at market rates of interest. Making
101
good use of government seed money and a World Bank loan during an initial phase, it has now
fully substituted savings deposits for external loans as its source of funds. With an outreach to
25.1 million saving accounts and 2.6 million borrowers (July 2000) through a network of 3,700
village units operating as profit centers, BRI covers its costs from the interest rate margin and
finances its expansion from its profits. With non-targeted loans from $5 to $5000 at rural market
rates of interest and unrestricted deposit services, the BRI Microbanking Division has weathered
the Asian financial crisis well, making BRI the only profitable government bank in Indonesia.
Several lessons can be drawn from BRI's experience:
· Financial sector policies work and are conducive to financial innovations
· With attractive savings and credit products, appropriate staff incentives, and an effective system
of internal regulation and supervision, rural microfinance can be profitable
· The poor can save; rural financial institutions can mobilize their savings cost-effectively
· If financial services are offered without a credit bias, demand for savings deposit services
exceeds the demand for credit by a wide margin
· Incentives for timely repayment work
· Outreach of a financial institution to vast numbers of low-income people and financial
selfsufficiency (including viability and self-reliance) are compatible
· Average transaction costs can be lowered, and both the profitability of a financial institution and
the volume of loanable funds can be increased by catering for both the poor and the non-poor with
their demands for widely differing deposit and loan sizes
Within a six-year period, 1984-90, BRI became a model case in Asia of the transformation of an
ailing government-owned agricultural development bank into a viable and self-sufficient financial
intermediary with ever-increasing financial resources and numbers of customers, competing
successfully with an array of other local financial institutions. Further strength was added to BRI’s
microfinance operations during the Asian financial crisis: When the Indonesian banking system
collapsed, BRI’s Microbanking Division remained profitable, with profits amounting to $150 million
in 1999. At the peak of the crisis, 6-8/1998, it attracted 1.29 million new savers during that threemonth period alone, while demand for credit, because of perceived uncertainties, stagnated. This
has generated excess liquidity of US$1.45 billion (July 2000) – a recurrent challenge during the
100-year history of BRI and its predecessors. Since the onset of the Asian financial crisis, the
division’s 12-month loss ratio has been continually dropping to 1.35% (July 2000), substantially
below its already low long-term loss ratio of 2.1% (1984-1999). Inspired by the success of BRI
and some other institutions in the region, governments and donors may focus their resources on
the transformation of agricultural development banks into viable, selfsustained microfinance
intermediaries, instead of closing them down.
Seibel, H.D. (2000). “Reforming Agricultural Development Banks”. Washington
DC: IFAD.
Abstract: The author states that agricultural development banks (AgDBs), which are not viable,
should either be closed, or transformed into self-reliant, sustainable financial intermediaries.
Experience shows that reform is possible. Among the prominent cases are Bank Rakyat Indonesia
(BRI) and Bank for Agriculture and Agricultural Cooperatives (BAAC, Thailand) as well as
ADB/Nepal, which has been transforming its small farmer credit program into financially selfreliant local financial intermediaries owned and managed by the poor. In Africa, many AgDBs have
gone into liquidation; but there are some promising cases of reform, among them BNDA/Mali.
Once the political will to reform has been generated, many more AgDBs have the potential of
contributing to poverty alleviation through sustainable financial services.
Seibel, H.D. (2000). “Agricultural Development Banks: Close Them or Reform
Them?” Finance and Development: Vol. 37, No. 2. IMF.
Abstract: Agricultural development banks were established to extend credit and other financial
services to customers not considered creditworthy by commercial banks. Although frequently
unprofitable, they can play an important role in the fight against rural poverty. This article
discusses the question of whether agricultural banks should be closed or revamped. The author
notes that despite the difficulties that have beset agricultural development banks in most parts of
the world, they have continued to provide important financial services through their branch
networks. In regions where these banks have been closed, their market share has generally not
been filled by other financial institutions. The experiences of the Bank for Agriculture and
Agricultural Cooperatives (BAAC) in Thailand and Bank Rakyat Indonesia (BRI) are examined and
used to support the contention that reforming agricultural development banks is feasible but only if
certain preconditions exist to facilitate their rehabilitation. In many cases, reform will mean
financial and organisational restructuring, including staff retraining and cleaning up any portfolio of
bad debts. Then the banks must concentrate on demand-driven financial products tailored to the
needs of rural customers.
102
Seibel, H.D. (2003). “Centenary Rural Development Bank, Uganda: a flagship of
rural bank reform in Africa”. Small Enterprise Development, Volume 14, Number
3, 10 September 2003, pp. 35-46(12).
Abstract: Centenary Rural Development Bank is a commercial bank providing deposit, credit and
money transfer services to poor clients in Uganda. Established by the Catholic Church as a trust
fund in 1983, it developed strengths in savings mobilization but performed poorly as a financial
intermediary. This article describes Centenary'sprogress since reform in the early 1990s when it
was transformed into a commercial bank. With donor support, the bank introduced a highly
effective individual lending technology, including a computerized loan-tracking system, and staff
and customer incentives encouraging timely repayments. This has resulted in an impressive
portfolio-in-arrears ratio of around three per cent. Since 2002, the bank has started to overcome
its quality-vs-productivity dilemma, by shifting incentives from repayment towards disbursement,
and adding mesofinance for small and medium entrepreneurs. This move has substantially
contributed to both the bank'ssustainability and its outreach to poor savers.
Seibel, H.D. (2004). "Report of the AFRACA Workshop Sustainability of
Agricultural Banks”. September 13-15, 2004, Harare, Zimbabwe.
Seibel, H.D.; Giehler, T. & Karduck, S. (2005). “Reforming Agricultural
Development Banks”. Eschborn, Germany: GTZ.
Abstract: The structure of this paper is as follows. In the introductory chapter, we have given an
overview over the background and the crucial issues. This is followed by a confidence building
section (with the evidence presented only in chapter 5). After briefly listing the flaws and ills of the
old world of agricultural credit, we outline the new consensus on rural finance, which overlaps with
that on microfinance, and list the major lessons taught by international experience in a condensed
format. Finally, we deal with the issue whether agricultural finance is really as risky and
unprofitable as it is usually depicted, particularly by those who stay away from it. In chapter 3, we
present some puzzling insights into agricultural finance from both a supply-side and a demandside perspective, pre-empting some of the evidence given in chapter 6. There is the usually
reported lack of funds in banks and lack of finance among the potential investors (such as farmers,
microentrepreneurs, commodity processors and traders) in some cases; but also the abundance of
funds and shortage of investment opportunities in others. In chapter 4, we set the scene for the
subsequent presentation of data, coming back to the basic issue of the introduction: ignoring,
closing or reforming agricultural banks. In Chapter 5 we present the statistical facts as given in the
AgriBank-Stat inventory of agricultural banks, amply illustrated by presentations of pre-reform,
reforming and reformed agricultural banks in Chapter 6. In the final chapter, we present the new
recent initiatives at agricultural bank reform, the role played by the agricultural bank associations,
and a planning framework for policy and decision makers.
Seibel, H.D. (2006). “Linkages between Banks and Microfinance Institutions in
Mali: A Case Study”. FAO.
Abstract: Over the last 20 years microfinance has evolved rapidly in Mali. As of 2003, the
microfinance sector consisted of 41 networks with 752 local microfinance institutions (MFIs) and a
total outreach of 612,000 clients. Since the mid-1980s, the government-owned agricultural bank,
Banque Nationale de Développment Agricole (BNDA), has been the main intermediary offering
financial services to MFIs. From the beginning BNDA acted primarily as a channelling bank on
behalf of donors until the mid 1990s when it began to act more as a channeling bank. This paper
discusses and compares the financial linkages that BNDA has with the two of the 41 MFIs networks
in Mali. First it looks at the liquidity balancing linkages with Kafo Jiginew, a federation of regulated
savings and credit cooperatives, which is based on self-reliance through savings mobilization,
using bank linkages mainly for liquidity balancing. The second case describes BNDA’s financial
linkage with the CVECAON (Caisses Villageoises d'Epargne et de Crédit Autogerées-Office du
Niger) network. This linkage is geared to credit expansion more than liquidity balancing, with a
significantly lesser emphasis on savings mobilization. Given the striking difference in strategy
between the two networks, the question is posed whether donor generosity leads to MFI
complacency.
103
Shah, D.P. (2003). “Reforming an Agricultural Development Bank”. Rural
Finance Nepal project, Working Paper No. 4.
Abstract: This Working Paper is about the reform attempts of the management of the Agricultural
Development Bank of Nepal (ADBN). It is describing in detail the two main reform packages of the
Bank in 1997 and 2001 and suggests lessons learned. In a sense, this report is unique since it has
been written by an ex CEO of the Bank, responsible for guiding the bank for five years from June
1997 to August 2002. His views on the bank's relationships with donors, on the bank's attempts to
cope with the rural finance paradigm shift and on internal and external difficulties encountered
during the reform process illustrate the challenges of public banks in any reform process.
Shylendra, H.S. (1996). “Institutional Reform and Rural Poor: A Study on the
Distributional Performance of a Regional Rural Bank”. Indian Journal of
Agricultural Economics 51(3): 301-314.
Srinivas, P.S. & Sitorus, D. (2004). “The Role of State Owned Banks in
Indonesia”. Paper presented at the 6th
Annual Financial Markets and
Development Conference, World Bank and IMF, Washington, D.C., April 26-27.
Abstract: State owned banks have historically played a major role in the Indonesian financial
sector. Even today, nearly half the assets of the banking system are controlled by state owned
banks. This paper explores the evolution of their role in the economy over the years. Looking
ahead, there is little economic justification for Indonesia to continue to have state owned banks.
Full privatization should therefore be the desired policy objective. However, given the likely
political difficulties in achieving this in the short run, steps should be taken to strengthen both the
state owned banks and the Indonesian financial sector.
Srinivasan, G. (2002). “Linking self-help groups with banks in India”. Small
Enterprise Development, Volume 13, Number 4, 1 December, pp. 47-57(11).
Abstract: India's bank-linkage programme has been running for 10 years and now provides
savings and loan services to 7.8 million households. The system is based on self-help groups which
organize loans and savings for their members, then deposit group savings or access group loans
from the bank. The national development bank, NABARD, provides refinancing and NGOs help
form and nurture the self-help groups. This article looks at how the groups are formed, what are
the advantages of the bank-linkage system, the extent to which different players in the sytem can
operate sustainably and future challenges.
Uddin, M. Salim. (2005). “Cost of Rural Credit Delivered by Formal Sector
Banks: A Study of Chittagong Area”. Bank Parikrama Volume XXX, No. 1,March
2005 (pp.87-104).
Abstract: Bangladesh economy to a great extend depends on the development of agriculture and
rural sectors. Government of Bangladesh tries to support rural financial institutions to ensure
sufficient flow of funds to these sectors. In this regard, loans are given at confessional rates in the
rural priority sectors. However, the crux of the problem is that the real cost of loan is much higher
than the official rate. The incidental cost of getting and repaying loan comprises expenditure
relevant to compiling formalities, days lost in getting and repaying loans, pleasing officials and the
like. The incidental cost of getting loan varies from 19.2 per cent for small size loan to 8.18 per
cent for large loan. In a similar way the incidental costs of repaying loan vary from 5.35 per cent
for small loan to 2.02 per cent for large size loan. This cost varies from 30.23 per cent to 21.20
per cent depending on the size of loan against 11 per cent official rate of interest. The lower the
size of loan the greater found the absolute cost. This situation needs to be addressed so that real
cost comes down which would help the desired target group. To this end, time limit for sanctioning
and disbursement of loan need to be fixed, formalities need to be simplified, service oriented
motto needs to be developed along with other measures which may reduce real cost to a
significant extend.
Vogel, R.C. et al. (1997). “Approaches to Rehabilitating Insolvent Banks:
Benefits and Costs of Liquidating an Agricultural Bank in Peru”. Unpublished
paper prepared by IMCC, Washington, D.C., October.
104
Vogel, R.C. & Llanto, G.M. (2006). “Successful Experience of Government-owned
Banks in Rural and Microfinance: The Case of the Land Bank in the Philippines”.
USAID. MicroREPORT, No.56.
Abstract: The Land Bank is a universal bank owned by the Philippine government. The government
established the Bank to provide financial services to a wide array of rural clients and to give
special attention to promoting rural development, assisting small farmers, supporting rural
infrastructure, and providing a variety of services to agrarian reform beneficiaries (ARBs). The
Land Bank does this not only directly at a retail level but also at the wholesale level through a
variety of financial intermediaries, including rural banks, credit cooperatives, and a few thrift
banks. The performance of the Land Bank is remarkable considering it has survived for 40 years
without requiring bailouts to avoid bankruptcy, and it continues to serve a large and diverse rural
clientele. This study looks closely into the Land Bank and attempts to determine the factors that
have driven its successful performance. This paper is organized as follows: The executive summary
comprises section I. Section II presents the Philippine economic and political environment in which
the Land Bank has operated. Section III discusses the institutional performance of the Land Bank
and identifies the internal and structural factors that have driven it. Lessons, conclusions, and
future challenges, are presented in the final section. The main areas of focus in recent years for
the Land Bank have been mobilizing deposits, diversifying and expanding the loan portfolio,
lending to small farmers and fisherfolk, and building capacity through technical assistance
programs. In terms of financial performance the bank has done quite well, with 9% growth per
annum in revenues (up to 21 billion pesos, approximately $382 million) and 51% growth per
annum in profits (2 billion pesos in 2004). Total resources of the Land Bank have been increasing
steadily at a yearly rate around 8%, capital funds stand at roughly 21 billion pesos, and deposits
make up 72% of the liabilities. The Land Bank’s Return on Equity (ROE) in 2004 was close to 11%,
better than the industry average. Net interest margin in 2004, reported at roughly 5%, was also
slightly higher than the industry average. Meanwhile the Land Bank’s registered capital adequacy
ratio has been at par with the industry standard of not less than 10% but still fell short of the
industry average.
Vyasulu, V. & Rajashekhar, D. (1993), "Credit for Rural Development:
Managerial Reforms in Indian Banks" Development Policy Review, Volume 11,
Number 4, December, pp. 393-412.
Wadhva, C.D. (1979). “Rural banks for rural development:
experiment”. Contributions to Asian Studies, XII, pages 179-95.
the
Indian
Westley, G.D. (2004) “A Tale of Four Village Banking Programs: Best Practices in
Latin America” Washington, D.C.: IADB, Sustainable Development Department
Best Practices Series MSM-125.
Abstract: Employing a unique data set on client retention, we find that leading VBIs in Latin
America have client retention rates significantly below a comparison group of individual and
solidarity group lenders. Based on this fact and the substantial rigidities, transactions costs, and
risks that village banking imposes on its clients, we argue that village banking needs to continue
becoming more flexible and client-oriented in order to increase client satisfaction, retention, and
impact. By improving client satisfaction and retention, VBIs will also facilitate increases in their
own sustainability and scale. Most of the paper (Chapters 2-3) is devoted to deriving and
discussing numerous best practice and policy recommendations, with many of these
recommendations focused on the theme of increasing the flexibility and client-orientation of village
banking. The paper analyzes the current practices of four leading Latin American VBIs: FINCA
Nicaragua, Pro Mujer Bolivia, Compartamos (in Mexico), and CRECER (in Bolivia). By making a
detailed examination and analysis of the major aspects of the village banking methodology
employed by these leading VBIs, we aim to show what lies behind their success. Each VBI’s
practices are studied critically and compared with those of the other VBIs, all within the context of
the village banking experience and literature worldwide and especially in Latin America. This allows
us to analyze what appears to be working well and what appears to need improvement, that is,
what are good, bad, and questionable VBI practices, with particular reference to Latin America.
The remainder of this Executive Summary provides a brief digest of these best practice and policy
recommendations. For readers without a background in village banking, this summary occasionally
may be hard to follow, reflecting the fact that we are trying to summarize a great many
conclusions in a small space. The text should elaborate on and clarify any difficult points. Readers
who are totally unfamiliar with village banking may wish to read the first few pages of Chapter 1,
including the section entitled, “What Village Banking Offers,” in order to have a basic
understanding of village banking.
105
Westley,
G.D.
(2004).
“Village
Banking:
Microenterprise Development Review, Vol.7, No.1.
Joining
the
Mainstream”.
Abstract: Village banking has arrived. In a recent survey carried out by the IDB and the
Consultative Group to Assist the Poorest of 176 of the largest and most sustainable microfinance
institutions (MFIs) in 17 Latin American countries, 47 MFIs offer village banking. Their village bank
loans collectively cover a total of 410,000 clients with $61 million in portfolio and an average loan
balance of $150. The number of clients served through village bankingnow exceeds the number
served through solidarity group lending (350,000). Village banking institutions (VBIs) range from
NGOs offering only village banking to regulated commercial banks offering village banking
alongside solidarity group and individual microloans.1 Geographically, the clients of VBIs range
from remote rural regions to peri-urban and urban areas. However, the percentage of clients
residing in rural areas is higher for village banking clients (29%) than for group or individual loan
clients (17% and 8%, respectively). In addition to this greater rural focus, the target clientele of
most VBIs are very poor microentrepreneurs (as shown by the low average balance of $150 for
village bank loans, versus $329 for solidarity group loans and $980 for individual loans), and
virtually all are women. One indicator of the more intense poverty focus of VBIs, taken from the
MFI inventory cited above, is the low average balance of $150 for village bank loans, versus $329
for solidarity group loans and $980 for individual loans.
Yaron, J. (2006). “State-Owned Development Finance Institutions (SDFI): The
Political Economy and Performance Assessment”. Savings and Development
Issue No. 1.
Abstract: The paper reviews the reasons for establishing state-owned development finance
institutions (SDFIs) and evaluates their performance compared to original expectations. It
highlights the lack of consensus regarding meaningful assessment criteria used in evaluation the
SDFIs’ performance. The paper further suggests, in the absence of a full cost-benefit analysis that
is only rarely carried out to rely on an evaluation methodology based on two primary assessment
criteria: the outreach to a well defined target clientele and the subsidy dependence of the SDFI
concerned. It further recommends that the debate on whether SDFIs still have any development
finance role to play should be shifted somewhat to focus instead on using this assessment
framework that calls for estimating the cost, subsidies, and defining and evaluating the “products”
delivered by SDFIs. The paper further describes the drastic transformation of a previously lossmaking, poor performing profit center in SDFI in Indonesia about twenty years ago to a very
successful one that provides financial services to the low-income rural population. This profit
center succeeded in achieving subsidy independence, substantial outreach and high profitability as
a result of implementing the ‘best practices’ in rural financial intermediation. There are many
lessons to be learned from the experience gained in transforming a poor performing, loss-making
SDFI into the world flagship of the rural micro-finance industry. This unprecedented success is
better appreciated considering that it is very costly to serve low income and poor rural clients. The
provision of low value loans and savings accounts with frequent installments for loan repayments
and saving withdrawals entails relatively high administrative costs per $ outstanding loan portfolio
(OLP). The lack of traditional collateral and reliable accounting data, as well as questionable
creditworthiness and debt servicing capacity of these clients further adds to the financial risk
involved. Many of the modes of operations that explain this successful performance can be applied
in servicing other target clientele such as small and medium sized enterprises (SME) and urban
poor, provided that necessary adjustments to the different socio-economic and cultural values of
these clients are appropriately made.
Young, R. & Vogel, R.C. (2005). “State-Owned Retail Banks (SORBS) in Rural
and Microfinance Markets: A Framework for Considering the Constraints and
Potential”. microREPORT, AMAP, January.
Abstract: This microREPORT provides a research framework for the United States Agency for
International Development (USAID) from the Development Alternatives, Inc. (DAI) consortium’s
Financial Services Knowledge Generation (FSKG) research team on the constraints and potential in
rural and microfinance markets for state-owned retail banks (SORBs—a term we use to refer to all
state-owned, retail-oriented financial institutions including agricultural development banks,
commercial banks, savings banks, and postal banks). The report that follows provides an update
on research activities and findings to date and outlines the next stages, activities, and objectives
of continuing this research. It is accompanied by a bibliography which lists documents, publications
and web sites on SORBs for those interested in further reading, three summary case studies of
different types of SORBs prepared from existing documentation for illustrative purposes, and
106
tables containing summary data collected during the survey of SORBs which were used for
selecting cases for further field research.
Zappacosta, M. (2003). “Village Banks for Rural Communities in Costa Rica”.
Savings and Development, Issue no. 3, 2003.
Abstract: Costa Rica has a long-term experience in financial services for small peasants.
Immediately after the achievement of the independence in 1821, small producers of coffee stared
to manage loans proceeding from processing plants and import companies. At the beginning of the
twentieth century, the central bank developed for the first time some special credit tools to
support agriculture. For almost seventy years, Cajas rurales and Juntas de Crédito Agrícola
financed the national production of both food and export crops. They were de facto operational
until the end of the 1970s, when a rising inflation rate reduced drastically the availability of credit
for small farmers. In these years, the Fundación Integral Campesina (FINCA), a local institution
specialised in rural finance, began to promote the diffusion of an innovative form of financial
intermediation called Bancomunales. Their structure and organisation are based on the Village
Banking methodology, originally developed by the Foundation for International Community
Assistance but then modified by FINCA to the national rural context. Costa Rican Bancomunales
are a pioneer and successful experience in rural finance programs in Latin America. In fact, since
their first establishment in 1984, the number of Bancomunales has continuously increased,
reaching many rural and remote areas. This paper examines the interesting lesson of Costa Rican
Bancomunales, analysing their structure, organisation and working mechanism. When addressing
the reasons of their success, a special attention is given to methodology features and to the
influence of the macroeconomic context. In conclusion, the paper proposes some methodological
and institutional changes that may be useful to enhance Bancomunales future autonomy.
ˆ Commercial Banks
AFRACA. (2003). “The Role of Commercial Banks in Rural Finance”.
Abstract: This publication provides the results of the analysis of three case studies selected from
the Africa Region (East Africa sub-region and French and English West African sub-regions) and
their further discussion in four workshops organized by AFRACA (The African Rural and Agricultural
Credit Association) in 2001 and 2002. The objective of the studies was to find out the reasons for
commercial banks getting involved or not getting involved in rural finance, the organisational
arrangements used by the banks in their rural operations, the products and services they offer and
some information about their costs, outreach and profits. The report says that although the
financial market policy environment has improved substantially in developing countries, there are
still six major obstacles to banks engaging in microfinance activities. These include:
•
•
•
•
•
The need for commitment at the highest levels of bank management so that microfinance
is not considered a second class activity.
Organisational design and the difficulty of integrating microfinance activities with
conventional large scale banking.
The radical departure from conventional financial technologies demanded by the
microfinance market, e.g. short term, group based, simple, fast, no collateral, low
minimum balance savings accounts, etc.
The need for specialised staff training.
The need to reduce costs and / or increase interest rates.
Banking regulations such as legal reserve requirements, loan classification and provisioning. There
are interesting reviews of bank experiences from Nigeria, Ghana, Kenya, Gambia, Uganda,
Tanzania, Burkina Faso and South Africa. The appraisal of rural and microfinance in Burkina Faso
in particular gives a good overview of the issues and problems preventing commercial banks
engaging significantly with non-formal financial service providers (FSP) in West Africa, together
with a useful list of recommended solutions, relevant to central banks, ministries of finance and
commercial bank policy-makers. The book concludes with a summary of all the workshop findings
and lessons learnt. A core conclusion is that involvement of commercial banks in rural and micro
finance operations is highly desirable. Without commercial bank involvement, rural finance tends
to lack depth. When deciding to enter the microfinance market the best approach appears to be a
phased process of introducing savings and loan products by targeting a limited number of
branches at a time to allow for gradual expansion as the bank builds up its experience and
107
capacity for microfinance. Wholesaling to NGOs may create a “win-win” situation if managed
carefully. Most importantly central banks are believed to have a vital role to play in enabling and
stimulating the banking sector to provide financial services to the rural poor.
Ahmmed, I. (2004). “Rate of Interest in the Microcredit Sector: Comparing NGOs
with Commercial Banks”, pp.195-203, in Ahmed, S. and M. A. Hakim (eds.)
“Attacking Poverty with Microcredit”, The University Press Limited, Dhaka.
Abstract: The NGO savings and credit approach is a great financial service innovation for the poor
which increases their economic security. In addition, the poor borrowers are now confident enough
to face any sort of disasters and emergencies. Effectiveness of NGO credit is obvious. A poor
borrower who started with a loan of Taka 3000 eight years ago is now borrowing Taka 30,000.
NGO credit is demand driven, repeat borrowing clearly indicates this. NGO credit is demanded
because of its low transaction costs and its other advantages (as mentioned in this paper) Over
commercial bank credit.
Alvarado, J.; Galarza, F. & Wenner, M. (2003). “CRITECNIA, PERU: The Private
Sector-Bank-Small Farmer Linking Approach”, Promising Practices in Rural
Finance: Experiences from Latin America and the Caribbean-Chapter 7.
Abstract: This chapter summarizes Critecnia Sociedad Anonima’s (S.A.) linking approach of
financing small-scale producers and commercial banks through a nonfinancial provate company.
Critecnia, a family owned group with close ties to cotton production and trading, was formed to
provide general advice services. The goal was to make trading more efficient by organizing supply.
As a result of a business survey, the management of the company found out that the most
efficient way to do so was to ensure financing and to develop economies of scale to costs and
obtain better prices from cotton harvest.
Harper, M. & Singh, A.S. (2005). “Small Customers Big Market: Commercial
Banks in Microfinance”. ITDG.
Abstract: The editors assume that readers accept that efficient and profitable financial services are
necessary for sustainable economic development, and that such services should be available not
only to the elite but to the mass of the population. Instead they pose a number of questions at the
outset:
•
Why should donors, governments and other institutions or individuals who want to extend
financial services to poorer people, to ‘reach the unreached’, spend so much money, time
and effort on building entirely new institutions, when there are thousands of banking
outlets already in place?
•
What is microfinance, other than extension of profitable banking to a new market that has
not been properly served before?
•
Who could be better qualified to provide banking services to this new market than
institutions which are already offering such services to large numbers of customers in the
same towns and even the same villages?
The authors suggest that times have changed since the ‘new paradigm’ microfinance first made an
appearance. They argue that donors and policy makers should look beyond MFIs, and should try to
encourage and assist banks and other formal financial institutions to replace them, to take them
over, or to initiate microfinance themselves in places where there are no existing MFIs. They
suggest that more directly, bankers themselves should look more closely at what MFIs and a few
other banks have achieved, and should seriously consider entering this market themselves, with or
without subsidy or other external support. The book provides 18 case studies, from 15 different
countries, which show how commercial banks have successfully engaged in microfinance. In
identifying these case studies, microfinance was defined loosely as ‘the provision of financial
services to poorer people who have previously not had access to them’. Both public and private
sector institutions were deliberately included in the definition of commercial banks, and are ‘forprofit full-service regulated financial institutions’. The cases cover a wide variety of ages and types
of institutions, which also have a diversity of strategies for entry into microfinance, with each case
demonstrating a number of different factors. Each case study is followed by 3 or 4 ‘discussion
questions’, which are sometimes deliberately contentious, designed to encourage readers to
question some assumptions, and to confirm, or revise, their own opinions. The book ends with a
summary of some of the conclusions and lessons the authors believe can be drawn from the case
studies.
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Hokenson, M. & Markson, T. (2003). “What Works: ICICI Bank Innovations In
Rural Finance”.
Abstract: ICICI Bank, India’s second largest banking institution, has discovered a large underserved market of potential customers—the 700 million mostly poor inhabitants of rural India.
Furthermore, ICIC considers business strategies for accessing this market as critical to the future
of the company. The bank also sees its efforts to develop viable commercial models and
distribution systems as having an important social mission—that of enabling the poorest of the
poor to become active and informed participants in socio-economic processes. In a relatively short
period, the company has established a significant presence in rural India as a direct provider of
financial services, helping to organize village self-help groups to whose members ICICI provides
micro-loans. To extend its reach, the company has also established indirect distribution channels,
becoming a lender to, and sometimes an investor in, some of the largest microfinance
organizations in India and partnering with several ventures to offer financial services over their
rapidly growing networks of Internet kiosks.
Khan, M.H. (1997). “Credit for Poverty Alleviation in Bangladesh: Performance of
Public Sector Banks”, pp. 203-216, in Wood, G. and I. Sharif (eds.) “Who Needs
Credit? Poverty Finance in Bangladesh”, The University Press Ltd., Dhaka.
Abstract: Banks have been being condemned time and again in various discussion
forums/seminars for their inability to meet the national need to increase efforts directed at poverty
alleviation. Such observations are not based on facts as is evident from the above discussion. The
banks have a clear and ambitious program for lending in the rural sector. But they also have
problems, which need to be looked at. Their efforts should be directed towards improving credit
delivery and their monitoring mechanism. There is a growing tendency among some experts to
propose the establishment of new conduits for channelling micro-credit, leaving the 'problematic'
existing institutions to one side. This is an expedient solution, since addressing problems within
the existing institutions is a more than Herculean task. But Bangladesh, as a resourcepoor nation,
should think twice before agreeing to such experiments. There have been a score of Rural
Development Projects with a credit component for poverty alleviation implemented since
Independence, involving the banks in dispensing micro-credit. But none of the projects addressed
the institutional deficiencies of the Participating Credit Institution (PCI). The result has been that
projects have folded and the Bangladesh Bank has withdrawn the temporary refinance facility
allowed to the PCI against project lending. Everyone involved in the process has washed their
hands of it, but the banks are left having to use depositors' money to carry the burden of huge,
overdue project loans. That a little institutional development support to the lending banks can do
magic has been proved by the performance of the SIDA/NORAD-assisted Productive Employment
Project of the Agrani Bank, and the ADB-assisted Rural Poor Cooperative Project of the Sonali
Bank. The former targets beneficiaries through informal pre-cooperative groups and the latter
targets beneficiaries through the cooperative structure. The projects' success in maintaining a
100% recovery rate belies the common notion that formal banks as well the cooperative sector are
not capable of handling poverty alleviation credit programs efficiently. The problem lies elsewhere,
and demands the thorough scrutiny of the experts.
Micco, A. & Panizza, U. (2005). “Public Banks in Latin America”. Background
paper prepared for the conference Public Banks in Latin America: Myths and
Reality, Inter-American Development Bank, Washington, D.C., Feb. 25, 2005.
Abstract: The lack of strong evidence on efficiency gains by privatization in Latin America, along
with low economic growth and a decline in bank credit to the private sector after 1998, have raised
concerns about the reforms introduced to the banking sector in the last decade. Critics of
privatization argue that domestic financial systems have gained in neither depth nor stability with
the closure or sale of public banks in the 1990s. Moreover, following the “development” view of
government participation in financial markets,5 critics argue that segments of the market
previously covered by public institutions now do not have access to financial services because
private banks are mainly oriented to wealthier segments and are not interested in small clients.6
Due to the prevalence of government-owned banks in the region and the increasing debate about
the policies that countries should follow in terms of public ownership in this market, there has
been an increasing interest among economists in providing both evidence about the effects of
government ownership on financial markets and a conceptual framework for evaluating the
performance of these institutions. This paper tries to contribute to this literature in four different
aspects.
109
Pearce, D.H. (2004). “Financial Services through State Bank”. CGAP, World
Bank, Agriculture Investment Sourcebook.
Abstract: State banks, particularly recently privatized state banks with large rural branch
networks, have the potential to offer low-cost access to a range of financial services on a wide
scale. This Agricultural Investment Note from the World Bank explores ways in which these
institutions can best be taken advantage of, in terms of their infrastructure, systems and services,
to provide improved access to a range of viable, demand-driven and low-cost financial services to
rural populations reliant on agriculture. State-owned banks that may have extensive networks of
rural branches include agricultural development banks, regional development banks, savings banks
and postal banks. The Note does not advocate a return to unqualified support for state banks or
putting lines of credit through state banks. It proposes three main options for engaging with these
types of banks and gives recommendations on how the options can best be pursued. They are: 1.A
management-led turnaround of the bank – which is the most ambitious and costly proposal. It
assumes the complete reform of the bank, such as took place in the Agricultural Bank of Mongolia
(AgBank) and the National Microfinance Bank (NMB) of Tanzania. The turnaround in these banks
was achieved by contracting a consulting firm to provide temporary foreign senior management,
intensive technical assistance, systems and infrastructure improvement, together with new product
development and marketing aimed at diversifying the financial services and improving branch
viability. 2. The creation of a specialized, autonomous micro or rural finance unit within a state
bank structure, that utilizes state bank branches and systems but is insulated from political
interference and can be given the freedom to operate on the lines of internationally accepted good
practice. Cited examples are Banco do Nordeste in Brazil and Bank Rakyat in Indonesia. 3.The
creation of linkages with other financial providers to improve access to a better range of financial
services for agriculturally dependent populations. An agreement with a postal savings bank, for
example, may allow a financial institution to provide money transfer services to their customers
and NGOs that are not allowed to offer deposit services could negotiate access to savings schemes
through a state bank. The Note goes on to review the benefits of these ways of improving state
bank operations and assesses a number of policy and implementation issues. The authors
recommend that that donors should only consider working with state banks if there is sufficient
long-term protection from government influence. They also suggest that it is important to proceed
ambitiously but cautiously.
Sobhan, R. & Fatmi, N.E. (1990). “Role and Problems of Public Financial
Institutions in the Recovery of Loans; Case Studies of Nationalized Commercial
Banks”, Research Report No. 111, Bangladesh Institute of Development Studies.
Steinwand, D. & Wiedmaier-Pfister, M. (eds.) (2003). “The Challenge of
Sustainable Outreach: How Can Public Banks Contribute to Outreach in Rural
Areas? Five Case Studies from Asia”. Eschborn: Germany: GTZ.
Abstract: As early as the 1960s Gurley and Shaw (1960) and later McKinnon (1973) stressed the
importance of a functioning financial system for development and criticised so-called financial
repression, i.e. the strict regulation of the financial sector, which was common at that time.
Throughout the 1960s and 1970s, most Third World governments, following traditional growth
theory, intervened in their economies on a massive scale. A cornerstone of this growth strategy
was the channeling of domestic and - even more importantly - donor money through specialised
development banks at concessional rates to priority areas such as the agricultural sector. Outreach
was the challenge here, with sustainability of little concern. The famous Spring Review, research
funded by USAID in South Korea and Taiwan in the 1970s, influential publications like
“Undermining Rural Development with Cheap Credit” (Adams et. al. 1984) and tighter
development aid budgets finally resulted in a shift in policy. From the mid-1980s, target lending
programmes were gradually replaced by a financial systems approach focussing more on the
sustainability and viability of the financial system and its institutions rather than on the number of
priority clients served. International Finance Institutions (IFIs) pushed structural adjustment
programmes (SAP) in partner countries and capped their refinancing lines for development banks.
Many of the notorious loss-making development banks, particularly in Latin America and Africa,
were closed down. It was hoped that lending business would be taken over by commercial banks.
This development is well documented in literature and does not need to be discussed in more
detail here. At the same time a new star was born. First experiences in Indonesia, Bangladesh,
Bolivia and some other countries demonstrated that banking with the poor is not only viable, but
indeed has a strong positive developmental impact on clients (income, employment, health, etc.).
This was the beginning of what M. Robinson (2001) recently called the Microfinance Revolution.
Within a decade microfinance projects mushroomed all over the world, leading to a large and
diverse microfinance industry by the end of the century. Although there are thousands of different
players active in the field of microfinance, each with their own strategies and beliefs, it is still
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possible to roughly separate them into two groups. The first group, we might call the
“sustainability fraction”. It perceives the existence of microfinance services as an integral part of a
strategy for financial systems development which gives priority to the viability and sustainability of
its institutions. The other group is the “outreach fraction”, which has poverty alleviation as its main
agenda, the number of poor gaining access to microfinance services its main criteria for success.
Although there are now many successful examples of microfinance institutions (MFI) which have
achieved sustainability, some of which also have impressive outreach in terms of both quantity and
quality, from a global perspective sustainable outreach - particularly to rural areas -remains an
unsolved problem.
Steinwand, D. & Kanathigoda, S. (2003). “The Challenge of Sustainable
Outreach: How Can Public Banks Contribute to Outreach in Rural Areas? An
overview”. Eschborn: Germany: GTZ.
Abstract: The following article provides a summary of the synopsis report “The Challenge of
Sustainable Outreach” which is based on case studies of five Asian public banks1 conducted in
preparation for the GTZ-APRACA Conference on Sustainable Outreach, which took place in
Colombo, Sri Lanka, in January 2003. With the re-emergence of rural finance as a key theme
amongst developing country governments and the international development community, this
article looks at current problems with providing financial services to rural areas and addresses how
five state-owned development banks in Asia have re-engineered themselves to achieve financially
sustainable outreach on a significant scale.2 Finally, the future challenges facing these public
banks and rural finance in general are briefly discussed.
Valenzuela, L. (2001). “Getting the Recipe Right: The Experience and Challenges
of Commercial Bank Downscalers”. Microenterprises Best Practices.
Abstract: This Working Draft notes that commercial banks and other regulated actors continue to
enter the microfinance world - in a process it calls downscaling. In theory downscaling is a good
solution to microentrepreneurs’ lack of access to credit. Banks have plentiful resources and a large
infrastructure to reach out to thousands of clients. Surveys and anecdotal evidence collected for
paper chapter, however, indicate that downscaling is a difficult endeavour. It suggests that the
experience of these new entrants in microfinance has been mixed. A few commercial actors have
succeeded, others are struggling and some have simply given up. This parallels the experience of
microcredit non-governmental organizations (NGOs). But unlike the NGOs which are buttressed by
a strong sense of mission as well as donor funds, most commercial banks usually make their
decision to exit the market quickly. For this reason, there are already a number of well-known
cases of bank exit.
Wampfler, B. & Baron, C. (2001). “Microfinance, agricultural banks, commercial
banks: what potential partnerships could finance family agriculture?” CIRAD.
Abstract: This paper from December 2001 was presented at an international workshop in Dakar,
Senegal, in January 2002. It looks at the issue of partnerships between different financial
institutions in order to assist family agriculture, particularly in West Africa. It is primarily a policy
paper, of interest to theorists and upper MFI and bank managers. Drawing on examples from
West Africa, the authors underline the two very separate courses that traditional banks and
microfinance institutions (MFIs) follow: often in competition with each other, and often simply
ignoring and working around each other. Inset boxes give small case studies. In some cases,
which are the main focus of this paper, partnerships develop between banks and MFIs. These can
take different forms. The first is a financial partnership, in which a bank lends to an MFI, with
loans often underwritten by a guarantee fund. The MFI often invests in the bank’s insurance funds
or other products. This form of partnership is not extremely close, in that it does not require or
build a strong confidence relationship between the two members. A closer relationship can
develop, in which the bank functions as the central bank for the MFI. A second type of partnership
is the technical partnership, in which the bank provides services for the MFI in the form of training,
transfer of funds, audit, and control. A third type of partnership is the institutional partnership, a
much closer form of association in which the bank can play a determining role in setting up the
MFI, the bank helping to define the institutional model of the MFI chosen by the operator. This
association can be long-term and can include the bank directing or influencing a wide range of
choices for the MFI. The paper then considers what benefits accrue to both banks and MFIs when
they enter into partnerships. For banks, a partnership with an MFI can mean increased bank
access in remote areas otherwise unreachable by the banks, which are constrained by their
centralised structure. MFIs can provide external channels of credit otherwise inaccessible by the
banks. MFIs, meanwhile, can benefit from a bank’s centralised structure, and can derive extra
financial credibility from such an association. Banks can also help make MFIs more professional.
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Sponsors, like international agencies, are often very interested to promote these partnerships. So
what obstacles impede partnerships between banks and MFIs? First, MFIs are still fragile
institutions, and the sector is still undergoing its own internal development, learning to improve its
services, training, and efficiency. Moreover, an MFI’s success often depends on its understanding
and responsiveness to specific local conditions, whereas banks tend to be less specifically focused
on local issues and less responsive to poor clients. Bank loans to MFIs can be quite expensive,
which is also an impediment to financial partnership. A, is another barrier. Finally, banks’
confidence in MFIs can be very fragile, which, given the power imbalance between the two types of
institution, with banks exercising far more authority than MFIs, can be fatal to a partnership. The
paper concludes with a brief consideration of methods to strengthen the possibility of such
partnerships, pointing out that the emergence of professional associations that could act as
mediators is a very positive sign. Banks want to see that MFIs are solvent and viable before they
will enter into a partnership.
ˆ Agricultural Finance
Adams, D.W. & Graham, D.H. (1981). “A critique of traditional agricultural credit
projects and policies”. Journal of Development Economics, Volume 8, Issue
3, June 1981, Pages 347-366.
Abstract: Authors critique the results, assumptions, and policies commonly associated with
agricultural credit projects in low income countries. A summary of new views on these projects is
present. These views emphasize voluntary savings mobilization and positive real rates of interest.
Several explanations are given for why few of these new views have been adopted by
policymakers.
ADB. (1993). “Agricultural Credit Policy Paper”. Draft. Manila: ADB.
AFC (Agricultural Finance Corporation) Limited. (1988). “Agricultural Credit
Review: Role and Effectiveness of Lending Institutions”. Vol. V. Bombay: AFC,
India.
Ahsan, S.M.; Ali, Ahsan & Kurian, N. (1982). "Toward a Theory of Agricultural
Insurance." American Journal of Agricultural Economics 64: 520-529.
Alvarado, J.; Galarza, F. & Wenner, M. (2003). “Financiera Trisán, Costa Rica:
Innovative Agricultural Credit Cards”. Promising Practices in Rural Finance:
Experiences from Latin America and the Caribbean-Chapter 8.
Andrews, M. Sr. (2006). “Microcredit and Agriculture: How to Make it Work”.
Mennonite Economic Development Associates, Canada.
Abstract: This paper discusses the challenges to ad factors affecting the success of institutions
providing financial services for agricultural activities. The World Bank definition of rural finance is
adopted here – the provision of a range of financial services such as savings, credit, payments and
insurance to rural individuals, households, and enterprises, both farm and on-farm, on a
sustainable basis. It includes financing for agriculture and agro processing. Agricultural finance is
defined as a subset of rural finance dedicated to financing agricultural related activities such as
input supply, production, distribution, wholesale, processing and marketing. And the term
microfinance is considered the provision of financial services for poor and low income people and
covers the lower ends of both rural and agriculture finance. Section 1 of this document provides
readers with an overview of recent research in the area of rural and agriculture finance, and sets
out the commonly held opinions. The following section then provides a discussion of the main
challenges in the provision of financial services in rural areas – the paper amalgamates different
lists from various sources that may constrain both supply and demand. Section 3 then points to
what is working. It notes, of course, that there is not one clear model or set of guidelines that an
institution can follow to ensure absolute success. However, the similarities amongst institutions
that have achieved “success” in the provision of rural financial services are discussed, as well as
some characteristics that can contribute to well performing portfolios within agricultural finance
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providers. The final section discusses what is being learnt – including a summary of the lessons
from urban microcredit that can be applied to rural areas.
Argent, N. (2000). “Whither the lender of last resort?: The rise and fall of public
farm credit in Australia and New Zealand”. Journal of Rural Studies, Volume 16,
Issue 1, January 2000, Pages 61-77.
Abstract: Public farm financial institutions were established in 20th Century Australia and New
Zealand to facilitate agricultural and rural economic development. This arrangement reflected
agriculture's economic importance, and rural society's political importance to both countries until
the early 1980s. With both countries’ adoption of monetarist principles (including financial
deregulation and the drive for smaller government) from the mid-1980s these public farm credit
providers were seen to distort the allocation of farm credit and to be an inefficient use of public
resources. Deregulation would, according to its many proponents, remove these distortions and
create a free market for farm credit which would deliver the most appropriate loan packages for
both countries’ farm sectors. The extensive literature on the New Zealand experience of farm
sector restructuring and primary research into the South Australian farm crisis of the late 1980s
and early 1990s show that the commercialisation and/or abolition of public farm credit providers in
both countries has fundamentally restructured the farm credit market but failed to address many
farm families’ demand for concessional, long-term finance. The research also demonstrates the
continuing need for local and regional case studies of the impacts of and responses to major
institutional restructuring that are both theoretically informed and scale sensitive as a means to
building a genuinely international literature on contemporary rural and agrarian change.
Asian Productivity Organization. (2001). “Agricultural Credit in Asia and the
Pacific”. Report of the APO symposium on Agricultural Credit held in Tokyo, from
8 to 14 September 1999. Tokyo: Asian Productivity Organization.
Abstract: This book is a compilation of the papers presented at the Symposium on Agricultural
Credit that was organized by the Asian Productivity Organization (APO) in September 1999. Part I
presents a summary of the findings of a regional survey on the subject in 1998 in 13 APO member
countries. Part II presents 2 regional reports that deal with agricultural credit in APO member
countries and the impact of financial deregulation on farm credit. Part III contains 2 resource
papers about rural finance in Asia. 16 country reports are presented in part IV.
Bass, J. & Henderson, K. (2000). “Leasing: a new option for microfinance
institutions”. Innovations in Microfinance: Technical Note, No.6. Microenterprise
Best Practices Project.
Abstract: This Technical Note is one of a series designed to showcase innovative microfinance
programmes from the February 2000 conference on "Advancing Microfinance in Rural West Africa"
conference held in Bamako, Mali. The Note presents leasing as a type of business financing that is
well suited to the microfinance industry, providing clients with access to medium term capital for
fixed assets. There is an excellent section describing the basic principles of lease agreements, the
different types of leases and the comparative advantages and disadvantages of leasing. There is
also a useful summary of the differences between leasing and lending and a checklist of the
characteristics of clients for whom leasing might be suitable. Some guidance is given on
determining leasing costs and the minimum legal framework that is required for implementing
leasing contracts. The Note includes brief summaries of leasing programmes that have been
implemented in Kenya, Madagascar and Bangladesh and reaches the general conclusion that
leasing does provide MFIs with new opportunities to reach borrowers and expand into existing,
untapped markets.
Bhandari, M.C. (1997). “Agricultural Finance Revisited: Using Policy to get
Results, a Case of India”. Working paper. Rome: Food and Agriculture
Organization of the United Nations.
Binswanger, H.P.; Khandker, S.R. & Rosenzweig, M. (1993). “How infrastructure
and financial institutions affect agricultural output and investment in India”.
Journal of Development Economics 41: 337-66.
Abstract: This paper has sought to quantify the inter-relationships among the investment decisions
of government, financial institutions and farmers and their joint effects on agricultural investment
and output. Empirical results using district-level time-series data from India confirm the
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importance of input and output prices in the determination of aggregate crop output, but also
confirm that aggregate outout supply elasticities are low. Education infrastructure availability and
the rural banks play an overwhelming role in determining investment, input and output decisions.
Availability of banks is a more important determinant of fertilizer demand and aggregate crop
output than interest rates. While farmers respond to infrastructure, the governments in turn
allocate their infrastructure investments in response to the agroclimatic potential of the districts
and banks locate their branches where the agroclimate and the infrastructure are favorable to their
operation. Agricultural output is therefore determined in a complex interactive process where
farmers, government and intermediaries respond to the same factors. This sharply affects the
econometric techniques which have to be used to analyze output supply.
Bjønskov, J.C.C. (2002). “Counting in Social Capital When Easing Agricultural
Credit Constraints”. Journal of Microfinance. Vol. 4, No.1.
Abstract: International trade liberalization often implies increased potentials for export production.
In order to invest in increasing capacity in agriculture, farmers need to have credit access.
However, farmers in Central Europe and East Africa, among other places, are credit constrained,
due to collateral reasons. Ad mode illustrates the additional producer gains from having access to
credit; the gains are composed of a price effect, an investment effect, and a social-capital
externality. The model and empirical findings suggest that improvements of agricultural credit can
be achieved by relying on existing social structures, such as farmers’ social capital. The paper
concludes that such externalities need to be addressed when designing optimal agricultural credit
institutions.
CGAP. (2005). “Bai Tushum Financial Foundation, Kyrgyzstan”. Agricultural
Microfinance: Case Study No 2.
Abstract: Bai Tushum Financial Foundation (Bai Tushum) began agricultural credit operations in
Kyrgyzstan in 2000, after assuming the foundering, three-year-old portfolios of several small
agricultural credit associations. With the support of numerous international donors, Bai Tushum
overcame a difficult macroeconomic environment, an unfavorable legal climate for microfinance,
and lack of an indigenous credit culture to become a strong, local institution serving the needs of a
range of rural and urban borrowers. Today, Bai Tushum offers a mixture of crop, livestock, agroprocessing, trade, and mortgage loan products. The MFI achieved 230 percent operational selfsufficiency in its first year of operation. By February 2004, its active portfolio had grown to 1,543
loans valued at US $2.5 million, with a reported portfolio-at-risk ratio (PAR > 30 days) of 4
percent. Although agricultural loans result in lower returns for Bai Tushum than its non-agricultural
loans, Bai Tushum's commit-ment to agricultural lending appears to supersede profit
maximization, with trade and other loans occasionally cross-subsidizing the agricultural portfolio.
CGAP. (2005). “Managing Risks and Designing Products
Microfinance: Features of an Emerging Model”. Occasional Paper No. 11.
for
Agricultural
Abstract: Renewed emphasis on poverty reduction has put rural populations, particularly
agricultural households, back in the spotlight of development efforts. Agricultural development
programs often include credits for agricultural production, which have renewed the debate about
how to provide finance in rural areas. This paper offers a model (agricultural microfinance), for
providing financial services to poor, rural farming households, which combines the most relevant
and promising features of traditional microfinance, traditional agricultural finance, and other
approaches.
Christen, R.P., & Douglas, P. (2005). “Managing Risks and Designing Products
for Agricultural Microfinance: Features of an Emerging Model”. CGAP Occasional
Paper, No. 11. Washington, D.C.: CGAP, August.
Abstract: The paper begins by highlighting that agricultural finance has been characterised by poor
loan repayment rates and unsustainable subsidies. Accordingly, agricultural credit from some
donors and multilateral development banks has dropped dramatically in recent decades and is now
often considered too risky. Agriculture is widely considered more risky than industry or trade. The
purpose of this paper is to provide practitioners, policymakers, and donors with a thorough
overview of agricultural microfinance. It aims to provide them with information to expand the
access of farming-dependent households to sustainable financial services on a large scale. This
paper sets out a model, termed agricultural microfinance, for providing financial services to poor,
rural farming households. The model aims to combine key features of traditional microfinance,
traditional agricultural finance, and other approaches – including leasing, area-based insurance,
and contracts with processors, traders and agribusinesses – into a hybrid defined by 10 main
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features. The analysis in this paper suggests that successful agricultural microfinance lenders rely
on various combinations of these features to mitigate the risks associated with lending to farming
households, although in no experience were all 10 features present. It contends that the presence
of a substantial number of these features appears to contribute to a well-performing portfolio, in
diverse combinations, in a variety of circumstances – in general, the first few features are found in
most successful experiences, while those that come later on the list have proven important in
addressing particular risks or situations found in lending to specific types of agricultural activities.
1. Repayments are not linked to loan use
2. Character-based lending techniques are combined with technical criteria in selecting
borrowers, setting loan terms, and enforcing repayment
3. Savings mechanisms are provided
4. Portfolio risk is highly diversified
5. Loan terms and conditions are adjusted to accommodate cyclical cash flows and bulky
investments
6. Contractual arrangements reduce price risk, enhance production quality, and help
guarantee repayment
7. Financial service delivery piggy-backs on existing institutional infrastructure or is extended
using technology
8. Membership-based organisations can facilitate rural access to financial services and be
viable in remote areas
9. Area-based index insurance can protect against risks of agricultural lending
10. To succeed, agricultural microfinance must be insulated from political interference
The paper is based around a discussion of each of these features – outlining the key elements,
giving examples and highlighting the challenges that still need to be addressed. Case studies from
leading organisations are also provided.
Coffey, E. (1998). “Agricultural Finance: Getting the Policies Right”. FAO / GTZ.
Abstract: Policies are powerful tools, but as this paper contends, they are so basic that they are
often overlooked in the search for better ways of pursuing objectives. This publication aims to
clarify the process of policy making for agricultural and rural finance, focusing especially on the
mechanisms involved. It is directed towards those responsible for formulating, managing and
tending the rural financial system - policy makers, donors and managers of rural finance
institutions. Key issues are set out as well as a methodology to aid in the evaluation of the
comprehensiveness of a given policy making system at national level. Case studies are also
provided as further illustration.
Dorward, A. et al. (1998). “Commercial Financing of Seasonal Input Use by
Smallholders in Liberalized Agricultural Marketing Systems”. ODI, Natural
Resource Perspectives, Volume 30.
Faruqee, R.R. et al. (1998). “Strategic Reforms for Agricultural Growth in
Pakistan”. Washington, DC: IBRD.
Abstract: Papers assess the past performance of Pakistan's agricultural sector, analyze the major
issues and constraints facing the sector in recent years, and propose a strategy for accelerating
and sustaining growth in the coming decades. The seven papers are as follows: 'Agriculture in
Pakistan - its role, performance, and constraints' (Faruqee, pp.1-22); 'Removing policy distortions
and redefining the role of government' (Faruqee, pp.23-44); 'Phasing out public enterprises in
agriculture' (Faruqee; R. Ali; Y. Choudhry, pp.45-68); 'Reforming the agrarian land market' (M.
Mahmood, pp.69-86); 'Improving irrigation and drainage' (M. Ahmad; Faruqee, pp.87-108);
'Improving rural finance' (S. Qureshi; I. Nabi Faruqee); and 'Developing a comprehensive strategy
for reform' (Faruqee, pp.143-148).
Feder, G.; Lau, L.; Lin, J. & Luo, X. (1989). “Agricultural Credit and Farm
Performance in China”. Journal of Comparative Economics 13: 508-526.
Abstract: This paper utilizes data obtained from recent farmer surveys in China's provinces of Jilin
and Jiangsu to describe credit transactions of agricultural households. The data indicate that while
informal credits are significant, they are not profit-motivated, and most are not fungible. The bulk
of the fungible credit is provided by institutional sources. In Jilin province, authorities provide
ample supply of credit and inputs to agriculture. The majority of farmers there were observed to
borrow. In Jiangsu the incidence of borrowing is much lower. However, the extent of unsatisfied
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demand for credit is highest in Jilin, because inputs are more readily available for purchase in the
free market. In the Jiangsu study areas, demand for credit is low because input supplies are
limited.
Fleisig, H.W. (1995). “The Right to Borrow: Legal and Regulatory Barriers that
Limit Access to Credit by Small Farms and Businesses”. In Viewpoint.
Washington DC: World Bank.
FAO (Food and Agriculture Organization of the United Nations). (1964). “New
Approach to Agricultural Credit”. Rome: FAO.
FAO & CARIPLO (Cassa de Risparmio della Provincie Lombarde). (1975).
“Agricultural Credit for Development”. Rome: FAO.
FAO & GTZ (Deutsche Gesellschaft für TechnischeZusammenarbeit). (1998).
“Agricultural Finance Revisited: Why?” Rome: FAO.
Abstract: This publication reviews experiences with agricultural credit programmes in the last
decades and the shift from directed credit towards a new approach based on rural financial system
development. It sets out the special market environment of the agricultural sector in developing
countries and the unique features of agricultural finance. These particular conditions still require
special government attention but in a different manner from that followed under the directed credit
approach.
Fries, B. (2001). “Basic Guidelines for Effective Rural Finance Projects: The
Guide to Developing Agricultural Markets & Agro-Enterprises”. Washington, DC:
World Bank.
Abstract: The findings and principles laid out in this paper form a basis for designing and
implementing projects that expand access to financial services in rural areas, by fostering a rural
financial market characterized by a conducive legal and regulatory environment where competing
firms and institutions can deliver these services profitably. The author reviews the constraints to
rural finance and presents options for overcoming these. A broad range of financial institutions and
the fundamental practices central to the sustainability of these is discussed. The criteria and
specific steps for designing effective programs in this field are reviewed and suggestions are
offered for monitoring and evaluation. Examples of innovative programs and best practices are
mentioned.
Harper, M. (2005). “Farm credit and microfinance - is there a critical mismatch?”
Small Enterprise Development Journal. Vol. 16, No.3. ITDG Publishing.
Abstract: "New paradigm" micro-finance has largely replaced old style rural finance, which was
mainly subsidised low-cost farm credit. The "old paradigm" rural development finance institutions
have in some cases disappeared, and in others they have been converted into what are effectively
specialist micro-finance institutions (MFI). This article asks if new paradigm micro-finance
effectively address the needs of farmers. The author constructs an interesting table which
compares the features of five possible uses of credit in a rural household - health needs, petty
trade, milking cows, crop loans and minor irrigation - with the characteristics of typical
microfinance loan products. He concludes that there is an increasing mismatch in suitability as one
moves from health needs and petty trade to crop loans and irrigation. He then goes on to examine
one particular feature in more detail - the mismatch of microfinance interest rates with on-farm
rates of return. Professor Harper believes that MFIs should consider their clients' rates of return
as well as their own costs when setting interest rates. He argues that if interest rates are higher
than the clients' returns, the long-term impact will be to impoverish them and not to enrich them.
Studies of many microenterprises have established that their rates of return can be very high. One
study of 215 microenterprises produced an average annual return of 847% (see online lesson
number 2 in the RFLC for an explanation of rates of return). However, examination of limited data
about returns for farm investments showed the highest figure was 160% and most were below
100%. To conclude the article the author asks if the low or negative margin between the cost of
micro loans and returns from farm investments matters. He cites arguments for and against the
issue being a problem and explores some trends which may help to render microfinance products
more suitable for farmers, notably the increasing competition amongst MFIs and from commercial
banks which will help to drive interest rates down. Microfinance staff seem largely unaware of the
potential unsuitability of their products for farming and the author recommends that those who
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advise, finance and train MFIs should encourage their staff to investigate the situation and address
the problem if there is one.
Hazell, P.B.R.; Pomareda, C. & Valdes, A. (1986). “Crop Insurance for
Agricultural Development: Issues and Experience”. Baltimore: The John Hopkins
University Press.
Hazell, P.B.R. (1992). “The Appropriate Role of Agricultural Insurance in
Developing Countries”. Journal of International Development 4: 567-581.
Hazell, P.B.R. & Reardon, T. (1998). “Interactions Among the Rural Nonfarm
Economy, Poverty, and the Environment in Resource-Poor Areas”. Paper
presented at the International Food Policy Research Institute Conference on
Strategies for Stimulating Growth of the Rural Nonfarm Economy in Developing
Countries, Arlie House, Virginia, 17-21 May.
Hollinger, F. (2003). “Financing term investments in agriculture: A review of
International Experiences”, Paving the Way Forward for Rural Finance: An
International Conference on Best Practices Case Study.
Abstract: This paper discusses the main findings of research conducted by FAO on term finance for
agriculture. It summarises the main lessons from a number of case studies of providers of term
loans, leasing and equity finance for small- and medium-scale farm related investments. The first
section briefly introduces the background of the research and highlights the main challenges and
hot spots for providing agricultural term finance. The subsequent section illustrates the financial
technologies used by the case study institutions to manage risks and transaction costs. The final
section points to the crucial role of donors in supporting rural financial institutions and their clients
to expand the financial frontier for term finance in rural area, and highlight some avenues for
support.
IFAD. (2003). “Agricultural Marketing Companies as Sources of Smallholder
Credit in Eastern and Southern Africa”.
Kalia, S.K. (1996). “Transactions Costs of Farm Credit in India”. Report
presented at the Asian Productivity Organization (APO) seminar held in
December 1993. Tokyo: APO.
Kane, E.W. (1984). "Political Economy of Subsidizing Agricultural Credit in
Developing Countries" in Adams, Graham and Von Pischke eds., Undermining
Rural Development with Cheap Credit, 1984, Westview: 166-182.
Khandker, S.R. & Faruqee, R.R. (1999). "The Impact of Farm Credit in Pakistan".
World Bank Policy Research Working Paper No. 2653.
Abstract: The Agricultural Development Bank of Pakistan (ADBP), which provides most formal
loans in Pakistan's rural areas, lends to largeholders far more than to smallholders, although the
impact of credit is greater for the smallholders. Targeting credit to smallholders would make
ADBP's credit scheme more cost-effective. To reach poor farmers and farmers without assets - in
other words, to reduce poverty-stringent collateral requirements should be relaxed and outreach
should be broadened. Both formal and informal loans matter in agriculture. But formal lenders
provide much more in production lending than do informal lenders, often at a higher cost than
what they can recover. The Agricultural Development Bank of Pakistan (ADBP), for example,
providing about 90 percent of formal loans in rural areas, incurs high costs on loan defaults. Like
other governments, the Government of Pakistan subsidized the formal scheme on the grounds that
lending to agriculture is a high-risk activity because of covariate risk. Because farm credit schemes
are subsidized, policymakers must know if these schemes are worth supporting. Using recent data
from a large household survey from rural Pakistan, Khandker and Faruqee estimate the costeffectiveness of the ADBP loans. To estimate credit's impact, they use a two-stage method, which
takes into account the endogeneity of borrowing. Clearly, formal lenders are biased toward larger
farmers with collateral. Large landowners, who tend to represent only 4 percent of rural
households, get 42 percent of formal loans. Landless and subsistence farmers, who represent
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more than 69 percent of rural households, receive only 23 percent of formal loans. ADBP loans
improve household welfare but, although large farmers receive most of the ADBP finance, the
impact of credit is greater for small farmers than for large farmers. Large landowners use formal
loans unproductively. Because the ADBP scheme is subsidized, it is not cost-effective for delivering
rural credit. It would be more cost effective if small farmers were better targeted instead. This
paper - a product of Rural Development, Development Research Group - is part of a larger effort in
the group to understand the cost-effectiveness of alternative credit delivery systems and their
impact on rural poverty.
Meyer, R.L.; Roberts, R. & Mugume, A. (2004). “Agricultural finance in Uganda.
The way forward” Financial Systems Development Programme, Bank of Uganda,
GTZ/KfW/Sida, Kampala, October.
Abstract: This report presents the findings of a study commissioned by the Bank of Uganda
(BoU)/GTZ/Sida Financial System Development Program and KfW that was designed to investigate
the development of selfsustainable agricultural finance in Uganda. The objective of the study is to
identify the major bottlenecks and draft a medium-term strategy for the support of agricultural
finance. It was undertaken against the backdrop of success that the government has achieved,
working in conjunction with several international donors, in strengthening microfinance services for
the poor.
Nair, A. & Kloeppinger-Todd, R. (2006). “Buffalo, Bakeries, and Tractors: Cases
in Rural Leasing From Pakistan, Uganda, and Mexico”. Agricultural and Rural
Development Discussion Paper, No. 28. World Bank.
Abstract: This discussion paper builds on a previous on previous work from the same series that
assessed the relevance and potential of rural finance leasing as a financing tool. The previous
paper suggested that the enhanced use of leasing in rural areas could be supported, because this
practice would overcome some of the existing constraints in providing rural credit for investment
financing. This current paper reinforces the case for supporting the development of leasing
services in rural areas by presenting the case studies of three leasing companies. Examples of
areas of support at the institutional level are provided and results that project managers can
expect are also discussed. The three firms analysed in the case-studies are:
•
•
•
Network Leasing Corporation Limited (NLCL)
Development Finance Company Uganda (DFCU)
Arrendadora John Deere (AJD)
Finance leases are said to be close substitutes for loans as asset financing tools. In finance leases,
the lease amortises most of the asset cost, usually cannot be cancelled during the lease-term, and
maintenance and insurance costs rest with the lessee. Nearly all risks associated with owning an
asset are transferred to the lessee without actually transferring the title. At the end of the lease
period, the lessee has the option to purchase the asset for a token price. The most significant
benefit to the clients of the case-study firms that was noted is access to the formal financial
system. The case studies suggest, however, that lease financing only partially overcomes the
typical constraints to credit financing. Two of the three case-firms take additional collateral (unlike
traditional leasing where the asset itself is usually considered security). The security deposit or
down-payment required by all three companies is also higher than typically demanded in
developing countries. Five lessons specific to rural leasing are drawn from the case studies:
1. In rural areas leasing is a means to acquire productive assets
2. Rural enterprises of different sizes benefit from leasing, but a provider may not be able to
serve enterprises of all sizes
3. Non-farm enterprises account for a significant proportion of rural leases
4. Rural leasing can be profitable, but jump-starting rural leasing may require government
and donor support
5. A rural leasing company may not be viable.
Rozner, S. (2006). “Rural Leasing”. USAID.
Abstract: This paper notes that in rural areas enterprises access to long-term finance is often
limited by a lack of acceptable collateral. It points to leasing as a financing tool that has the
potential to address this market failure in rural credit. While traditionally, more common in urban
centres, leasing overcomes many of the constraints to accessing medium and longer-term
financing in rural areas. Leasing can allow businesses with limited collateral, cash and credit
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history to acquire productivity-enhancing equipment, while providing lessors with the comfort they
need to take on rural and agricultural clients. The value of an asset from leasing is assumed to
come from its use as opposed to lending where the value of an asset stems from its ownership.
Leasing is defined here as a contractual arrangement between two parties, where the provider (the
lessor) owns the asset and lets the client (the lessee) use the equipment in exchange for periodic
payment. Leasing comes in two main forms: finance leases and operating leases – finance leases
are seen as close substitutes for term loans for financing asset acquisition whereas operating
leases are similar to rental agreements. This paper from the Rural and Agricultural Finance
Initiative explores the benefits that developing leasing markets can bring to farmers and rural
businesses – it discusses accessibility, duration, flexibility, processing time, taxes, ownership and
regulation. It also addresses the constraints that must be overcome in developing a viable leasing
industry, and interventions that can help overcome those constraints, drawing on the leasing
literature as well as recent donor experience in this sector.
Ruben, R. & Van den Berg, M. (2000). “Farmers' Selective Participation in Rural
Markets: Off-Farm Employment in Honduras”. In Ruerd Ruben, and Johan
Bastiaensen, Rural Development in Central America: Markets, Livelihoods and
Local Governance, 189-209. New York: St. Martin's Press, Inc.
Abstract: The paper analyses the importance of the off-farm employment component of family
income, and discusses the relevant farm and household characteristics that give rise to
engagement in the rural labour market. While considering off-farm employment as a compensating
device for limited access to rural financial and land markets, linkages between off-farm income,
the use of credit and the mobilization of savings are highlighted. Moreover, expenditure effects are
addressed through the discussion of the implications of off-farm income for household food
security. Instead of looking at off-farm employment of small peasant households as only a
secondary component, the paper focuses attention on wage income as a major element of the
rural livelihood strategy that permits the maintenance of a survival strategy based on the
combination of a number of complementary activities. This enables small farmers better to
overcome limitations in the access to markets and favours the adoption of risk-sharing strategies
that are considered typical for resource-poor households operating under conditions of selective
market failure. The paper begins with a brief historical review of the structure of agricultural
employment and the development of the rural factor and commodity markets in Honduras.
Empirical evidence is presented, focusing on the internal farm and household characteristics that
explain the relative importance of off-farm income in the process of household income formation.
Skees, J. (1999). “Agricultural Insurance in a Transition Economy”. Agricultural
Finance and Credit Infrastructure in Transition Economies: Proceedings of OECD
Expert Meeting, Moscow, 233-49.
Abstract: Availability and cost of credit are influenced by risk. Well-functioning risk sharing
markets can improve availability of credit and reduce cost. One source of risk is from adverse
weather that can greatly reduce crop yields. Thus, it is desirable to have effective multiple peril
yield crop insurance. However, nearly all attempts by governments around the world to support
crop insurance have failed, primarily due to several unique problems that accompany offering
multiple peril crop insurance. This paper reviews those problems and offers an alternative that is
largely free of the problems. The alternative holds promise for improving the availability of risk
sharing markets.
Temu, A.E., Mwachang'a, M. & Kilima, K. (2001). “Agriculture Development
Intervention and Smallholder Farmers Credit in Southern Tanzania: An
Assessment of Beneficiaries”. Savings and Development African Review of
Money, Finance and Banking, no. Supplement: 119-41.
Abstract: Despite many failures of agricultural credit schemes in Low Income Countries, small
farmers finance remains an important component of agricultural development projects. The
failures of the supply led credit, and the need to ensure institutional efficiency and sustainability of
the credit programmes call for continued studies to evaluate credit delivery initiatives by
development projects. This paper focuses on the credit issued by the Southern Highlands
Extension and Rural Finance Project to small farmers in Tanzania. Analyses anchor on regression
and discriminant models using field survey data from 71 borrowers and 49 non-borrowers.
Together with some institutional design faults, the study has identified important socioeconomic
variables that influence farmers' demand and eligibility for credit. The general conclusion from the
study is that there has been an overemphasis on institutional weaknesses due to the ignorance of
limitations on the demand side. The recipients' lack of business orientation, acumen and
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entrepreneurial drive has a big hand in the ineffectiveness of credit projects. The paper
recommends that, credit projects should place great importance on identifying viable borrowers
based on their commercial orientation and business acumen. The projects should include training
(on business and debt management) components in their programmes.
Tillette de Mautort, A. (1999). “Mozambique: Options to Support Grain Marketing
Credit”. Food security in Malawi and Mozambique.
Abstract: As part of its Food Security Programme in Mozambique the European Commission (EC)
has programmed a marketing credit facility which is intended to facilitate the marketing of
agricultural produce. This paper explores two financial options: a)? a credit line to enable traders
to purchase additional quantities of produce; b)?a guarantee facility accessible to lending
institutions in the event of traders defaulting on marketing loans. The paper identifies the target
group and risks faced by lending institutions before examining in detail the practicalities of the
financial options. The paper includes a case study developed to demonstrate the impact of factors
like interest rate and loan defaulting on the sustainability of the credit line in the absence of
subsidies. It also assesses the number of beneficiaries that could benefit from it. This is compared
with a similar (although not as detailed) model of a guarantee scheme. The paper concludes that
under the present circumstances a comparison between a marketing credit line and a credit
guarantee fund comes down in favour of the credit line for the following main reasons: a) a
marketing credit line could be put in place more quickly than a guarantee scheme; b) the
functioning of a credit line is more easily understood institutionally and by borrowers; c) lending
institutions are likely to be more diligent in making and recovering loans under a credit line; d) a
guarantee scheme adds yet another set of procedures to be completed before a loan can be
approved, resulting in delays.
UNCTAD Secretariat. (2002). “Farmer and Farmers’ Associations in Developing
Countries and their use of Modern Financial Instruments”. United Nations
Conference on Trade and Development.
Abstract: This paper begins by noting that since the beginning of the 1990s, with the liberalisation
of commodity trading and pricing in developing countries and countries with economies in
transition, the burden of risks has been shifted from Governments to farmers. In most of these
countries, farmers, previously largely insulated from the day-to-day vagaries of the world market,
now bear most of the brunt of volatile and unpredictable prices. The paper also suggests that when
farmers receive prices that are unstable and uncertain, they run price risks from the moment they
decide to plant a crop, and every time that they buy and apply inputs such as fertilisers or
pesticides, or use paid labour. Furthermore, farmers’ associations too may run price risks: if they
advance their members credits which are to be reimbursed through future deliveries of crops, they
run the risk that, at the moment that the crop is sold, prices have fallen to levels too low to enable
loan reimbursement. Following this, the paper argues that whilst risk management markets are
not a panacea for farmers’ problems – they do not exist and are never likely to exist for all
commodities, and can only give temporary reprieve from a secular fall of prices – they could,
nevertheless, greatly help developing country farmers to improve their lives. In addition, the paper
points out that transfer of price risk is not the only facility that financial mechanisms and
techniques can offer to farmers. Financial techniques can also be used to reduce farmers’
counterparty risk – to shift the risk of lending from the farmer (a credit risk) to the crop (a
performance risk). This paper looks at the practical applications of “new” financial techniques for
enabling farmers to manage price risk and facilitating their access to credit. The first chapter
provides an overview of farmers’ attitude towards risk, and the possible role of farmers’
associations in helping farmers cope with price risk and in facilitating agricultural financing. The
next chapter describes various applications of financial techniques for price risk management and
agricultural finance. The final chapter focuses on possibilities for farmers’ associations to enhance
their use of these techniques, including through the use of modern communication and information
technologies.
USAID. (2006). “Rural Leasing”. RAFI Notes (Rural and Agricultural Finance
Initiative) Issue 11.
Abstract: RAFI Note #11 explores the benefits that developing leasing markets can bring to
farmers and rural businesses. It also addresses the constraints that often must be overcome in
developing a viable leasing industry, and interventions that can help overcome those constraints,
drawing on the leasing literature as well as recent donor experience in the leasing sector. The note
concludes by highlighting the implications for USAID programming in rural and agricultural finance.
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Von Pischke, J.D., & Adams, D.W. (1983). "Fungibility and the Design and
Evaluation of Agricultural Credit Projects." in J.D. Von Pischke, D.W. Adams and
G. Donald (eds.) Rural Financial Markets in Developing Countries, Baltimore and
London: Johns Hopkins University Press.
Wenner, M. & Rodolfo Q. (2000). “Agricultural Credit Card Innovation: The Case
of Financiera Trisan”. Best Practices Series ed. Washington, DC: Inter-American
Development Bank.
Abstract: Credit cards are ubiquitous in the industrialized countries and becoming more commonly
used by the urban middle and upper classes of developing countries. In the rural areas of
developing countries, however, they are less common due to the greater seasonality in income
flows and the higher rates of poverty. Financiera Trisan, a finance company in Costa Rice, has
introduced a rural credit card, targeting agricultural input suppliers and farmers. The promise of
this product is that it can dramatically reduce transaction costs for clients and merchants accepting
the card. This paper analyzes the experience of Financiera Trisan in developing and expanding its
credit card program. The principal findings are that the credit card is a viable and profitable
product; and that infrastructural and legal obstacles present in the country require creative
solutions.
Wenner, M.D. (2005). “Agricultural Insurance Revisited: New Developments and
Perspectives in Latin America and the Caribbean”. Inter-American Development
Bank (IADB).
Abstract: The introduction to this paper states that agricultural insurance is emerging as a topic of
interest to farmers, policy makers, insurance companies, and development finance institutions in
Latin America and the Caribbean after a long hiatus – with agricultural insurance being more
widespread in Latin America and other developing regions of the world during the 1960s and
1970s. During the intervening period, financial difficulties encountered meant most of the
programs were either scaled back or completely closed. This paper focuses on production risk
management, explaining key concepts, understanding why crop insurance markets have been slow
to develop, and making recommendations about how to build sustainable markets in developing
country contexts. The challenge, noted in the paper, is to overcome obstacles and deliver efficient
and sustainable agricultural insurance products. The principle obstacles highlighted and discussed
in the paper are lack of quality information, inadequate regulatory frameworks, weak supervision,
lack of actuarial expertise, lack of professional expertise in designing and monitoring agricultural
insurance products, a mass of low-income, dispersed clients, who may not be willing or able to pay
actuarially sound premiums for multiple peril products, and the tendency of governments to
undermine market development through inappropriate use of subsidies and disaster relief funds.
Case studies on Uruguay, the Dominican Republic, and Peru are used to show how crop insurance
products are evolving and/or what government-supported initiatives are under the way to expand
coverage. Recommendations of how to build markets step-by-step and the importance of applying
new technology to lower costs are also made. The author states that the purpose of this paper is
to provide Bank staff interested in agricultural yield insurance market development, public officials
responsible for financial market policy formulation and supervision, and insurance industry
practitioners in Latin America and the Caribbean with a basic primer on the topic, an overview of
previous experiences, and a set of guidelines and recommendations on how to develop viable and
sustainable agricultural yield insurance markets.
Westley, G.D. (2003). “Equipment Leasing and Lending: A Guide for
Microfinance”. Washington, D.C.: IADB, Sustainable Development Department
Best Practices Series, Micro, Small and Medium Enterprise Division.
Abstract: This paper describes how to do equipment finance—leasing and lending—for mainstream
microentrepreneurs, that is, for those microentrepreneurs needing approximately $50 to $2500 to
purchase equipment. Specifically, this paper examines the pros and cons of the two major
financing alternatives, loans and leases. The paper also provides a series of best practice
recommendations for microfinance institutions (MFIs) to use in their equipment leasing and
lending programs. Although much has been written about equipment leasing for small, mediumscale, and large enterprises, little is avail able on how to lease to mainstream microentrepreneurs.
Similarly, little has been written on how to do equipment lending to the same target group.
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Westley, G.D. (2003). “Microleasing: The Unexplored Financing Instrument”.
Microenterprise Development Review, Vol.6, No.1.
Abstract: In microfinance, leasing is an unexplored instrument. A few Latin American microfinance
institutions (MFIs) have indeed given it a try, but they can be counted on one hand. Lease
financing is used to support equipment purchases, which in turn allows the entrepreneur to expand
production, improve product quality and increase revenues. So, if lease financing is an attractive
way to provide medium-term financing for equipment purchases, why isn’t it more commonly used
among MFIs? Is the lack of leasing in microfinance due to a lack of knowledge among MFIs (and
thus a great unexplored opportunity), or are there in fact some features that make it less than an
obvious proposition in the context of microfinance? To answer these questions, and provide some
recommendations for interested MFIs, the concept of leasing must first be sorted out.
Wieland, R., et al. (2003). “A Comparative Study of Fertilizer Credit in
Bangladesh”, Paving the Way Forward for Rural Finance: An International
Conference on Best Practices Case Study.
Abstract: This presentation provides a snap-shot of credit delivery in a liberalizing market for
fertilizer. For seven years prior to the study that it is based on, the Government of Bangladesh,
with assistance from the US Agency for International Development1, had been taking steps to
extricate public agencies from their central roles in importing and distributing fertilizer and to allow
a larger role for private enterprises in these activities
World Bank. (1993). “A Review of Bank Lending for Agricultural Credit and Rural
Finance (1948-1992)”. The World Bank, Operations Evaluation Department,
Washington D.C.
World Bank. (1998). “Kyrgyz Republic: Agricultural Support Services Project,
Staff Appraisal Report”. Washington DC: World Bank.
World Bank. (2004). "Agriculture Investment
Investments in Rural Finance for Agriculture.”
Sourcebook,
Module
8:
Abstract: The module focuses on the provision of financial services for agricultural activities and to
agriculturally dependent households, though most services do not exclusively provide financing for
agriculture. They also provide financial services to nonagricultural rural and, in some cases, urban
communities. Service providers include formal, semiformal and informal institutions, ranging from
full-service banks to specialized agricultural finance institutions, microfinance institutions (MFIs),
financial cooperatives), credit unions, savings and loan associations, traders, and processors.
Yazdani, S. (2005). “An Evaluation of Agricultural Credit System in Iran”.
Savings and Development, Issue no. 2.
Abstract: The adoption of the Islamic credit system and the socio economic impact of this
innovation on the agricultural sector is a development of considerable potential interest to
economists in Iran. The Islamic credit system offers the prospect of lifting part of the risk off the
shoulders of farmers through the provision of profit and loss sharing loans. In this way such loans
not only totally avoid the magnification of risk associated with debt financed investment under a
western style interest based credit system, but they also carry a share of the production risk.
Therefore it is reasonable to conclude that the introduction of the Islamic credit system should
result in wider credit use to finance productive investment in agriculture. An examination of the
performance of the Agricultural Bank supports a hypothesis that funds would shift towards
financing productive investment (as compared to consumption) under the Islamic system. The
evidence available fails to support a proposition that credit will be redistributed towards small
farmers under the Islamic system. Analysis of attitudinal data suggests that the majority of small
farmers prefer credit provided in the form of profit and loss sharing loans under the Islamic credit
system to interest bearing loans under conventional credit systems. Farmers' preferences for
taking out loans from an Islamic credit system were found to be related to a number of factors.
Risk sharing and religious acceptability of the profit and loss sharing loans over the interest based
loans were two significant reasons. In spite of small farmers' preferences to borrow using the profit
and loss sharing system, the evidence available fails to support the proposition that credit will be
redistributed towards small farmers under the Islamic system.
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ˆ Savings Mobilization
Abdullah, T.; Rutherford, S. & Hossain, I. (1995). "BURO, Tangail Rural Savings
and Credit Program - Mid Term Review", Manuscript, Dhaka.
Adams, D.W. (2002). “Filling the Deposit Gap in Microfinance”. Paper Presented
for the Best Practices in Savings Mobilization Conference, Washington D.C. USA.
Abstract: Dale Adams notes that AID’s experience with small farmer credit programs, the World
Bank’s funding of development banks, and the Inter-American Bank’s efforts to channel funds into
financial cooperatives through a regional organization all discouraged deposit mobilization efforts.
He wonders if all of the donor and government money given to the microlending industry hasn’t
had the same result. He makes a number of recommendations to donors and governments about
how they can avoid this and promote more innovation and outreach in deposit taking.
Agency for International Development (A.I.D.). (1991). “Mobilizing Savings and
Rural Finance: The AID Experience”. Washington, D.C.: USAID Science and
Technology in Development Series, Agency for International Development.
Alam, M. (2002). “Institutionalization and Development of Saving Habits through
Bai-Muajjal Mode of Islamic Banking Finance (A unique means of mobilizing rural
savings towards productive sources)”. London, UK: Alternative Finance. 2002.
Abstract: The rural-based industrial sector in developing nations contributes greatly towards
economic development by generating employment opportunities and mobilizing rural savings
towards productive sectors. The Bai-Muajjal mode of financing used by Islamic banks is a unique
means of developing saving habits among rural entrepreneurs. The article includes the outcome of
the author's research process developed to discover how the Bai-Muajjal mode of Islamic banking
finance serves to institutionalize the saving habits of rural-based small industry owners and to
what extent this lending technique successfully mobilize rural savings towards productive and
profitable projects. The article consists of three different sections. Firstly, it highlights the
methodological and theoretical aspects used for the research. The second section includes a brief
description of different financing modes of Islamic banks and an empirical, study-based discussion
as to how different Islamic banks lend funds to the rural-based small industry owners in
Bangladesh. The final section of the article represents an analysis of the research result showing to
what extent the Bai-muajjal mode of Islamic banking finance contributes to developing savings
habits among rural entrepreneurs and mobilizing the savings towards productive projects.
Allen, H. (2002). “CARE International’s Village Savings and Loan Programmes in
Africa: Microfinance for the Rural Poor that Works.” Tanzania: CARE
International.
Abstract: Over the past decade, CARE International in Niger has developed and implemented Mata
Masu Dubara (MMD), a self-managed system of the purest form of financial intermediation. MMD is
now a membership based programme servicing approximately 162,000 rural women in one of the
poorest countries in Africa. MMD is not a single institution but an amalgamation of nearly 5,500
stand-alone groups, each with about 30 members, operating in almost identical ways. This paper
tells the story of MMD and highlights a few of its sister programmes in other African countries. The
basic principles of CARE's village savings and loan programmes are:
•
•
•
•
•
•
savings based financial services with no external borrowing or donations to the loan
portfolio
self-management
simplicity and transparency of operations
flexibility in loan sizes and terms
low group management costs met through group earnings
earnings retention in the group and local community
In addition CARE avoids the complexity of creating VS&L apex institutions and more formal
intermediary structures. CARE believes that this methodology offers a solution to the problems of
sustainability and institutional instability that for years have bedevilled practitioners who have
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attempted to create rural financial intermediaries. The paper seeks to draw conclusions about the
strengths and weaknesses of the methodology and its potential for broader worldwide application.
Amimo, O.; Larson, W.; Bittencourt, M. & Graham, D.H. (2004). “The Potential
for Financial Savings in Rural Mozambican Households”. Savings and
Development, Issue no. 2, 2004.
Abstract: Many policy makers and businesses erroneously believe that rural populations,
particularly in Africa, have no margin for savings over consumption needs. This study examines
the potential for financial savings in rural Mozambican households by looking at the determinants
of savings behavior. An econometric model for a household’s saving behavior was estimated using
data from 113 rural households from Nampula province in Mozambique. Results indicate that
income, physical wealth, household size, and years of schooling affect a household’s savings
behavior. The results of this study show evidence of a high potential for household financial
savings in rural areas of Mozambique. The study also finds that Mozambican rural households use
their own grassroots associations for many financial services due to the lack of access to formal
financial intermediaries. The study concludes that existing economic and financial policies have led
to the neglect of the mobilization of savings in general and in rural areas in particular. More
specifically, rural households do not have adequate opportunity to save with formal financial
intermediaries. Financial policy reform is needed to increase domestic savings for development and
to reduce the country’s dependence on foreign donor funds.
Andrews, M.A. (2006). “Don’t Drown the Seedlings: Lessons for Savings and
Credit Union Development from the Experience in East and Central Asia”. ADB.
Abstract: This paper is intended to provide practical insights into the nature of SCUs and their
supporting infrastructure, and draw conclusions that will be helpful to policy-makers and
development partners. Individual SCUs and their related apex organizations can vary widely in size
and structure, just as banks, microfinance institutions and specialized rural finance organization
come in many forms and sizes. Despite this divergence, there are common principles that can
guide policy-makers and development partners. This paper draws on the experience with SCU
development in selected countries and the literature on SCUs, microfinance and financial sector
development to suggest key points to be considered if projects to support SCU development are to
be successful.
Aryeetey, E. & Udry, C.R. (2000). “Savings in Sub-Saharan Africa”. CID Working
Paper 38. Cambridge, Mass.: Harvard University, Center for International
Development.
Abstract: Gross domestic savings in Africa averaged only 8 percent of GDP in the 1980s, compared
to 23 percent for Southeast Asia and 35 percent in the Newly Industrialized Economies. Aside from
being generally low, saving rates in most of Africa have shown consistent decline over the last
thirty years. These savings figures must be considered tentative, because they are derived as a
residual in the national accounts from expenditure and production data that are themselves quite
unreliable. Notwithstanding the problems of measurement, it is clear that savings are dominated
by household savings. Survey evidence in turn shows that household savings are primarily in the
form of non-financial assets. Financial savings are predominantly directed to informal markets and
institutions. The paper documents these trends and provides a simple model of portfolio allocation
to guide future research. It is suggested that an array of transaction costs associated with formal
financial markets, coupled with the risk management strategies and production activities of
households in Africa account for the patterns of saving and portfolio allocation observed in the
data.
Ashe, J. (2002). “A Symposium on Savings-Led Microfinance and Rural Poor”.
Journal of Microfinance. Vol. 4 No. 2.
Abstract: Microfinance has achieved much in the twenty years since it became recognized as an
important tool of development, but the demand for credit and savings services far exceeds the
current institutional capacity. While microfinance institutions effectively deliver services to cities
and densely populated rural areas, they have had limited success serving rural areas more than a
few kilometers from urban centers. In only a few countries— Indonesia, Bangladesh, and Bolivia,
for example—has microfinance reached a sufficient number of clients to make a difference on a
national scale. How can the rest be reached? The answer may be already before us. The programs
from Nepal, Niger, India, Mexico, and Bangladesh profiled in this symposium on “Savings-Led
Microfinance” are accomplishing exactly that. Instead of creating new microfinance institutions,
locally controlled self-help groups are being trained to mobilize their own savings, manage their
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own accounts, and make loans at interest to their members. Since the issue is defined as group
strengthening, not credit delivery, the standard microfinance paradigm has been turned inside out.
In addition, savings-led programs build equity within the group rather then debt to an MFI and the
interest paid on the loans contributes substantially to building the group’s fund. When a woman
leaves her group, she takes her savings and the interest her savings generated with her. All this is
occurring in rural settings where a $30 loan is substantial, where a dollar a day would represent a
tripling or more of per capita income, and where literacy rates are very low.
BAAC & GTZ (Deutsche Gesellschaft für Technische Zusammenarbeit). (1998).
“Savings Mobilization in the BAAC: Analysis of Past Trends, Assessment of
Performance and Recommendations for the Future”. Bangkok: Bank for
Agriculture and Agricultural Cooperatives.
Bedard, G. et al. (1986). “The Importance of Savings for Fighting Against
Poverty by Self-Help”. Volume I & II. Report of a Workshop held in Bonn, June
18-20, 1986. Bonn: Deutsche Stiftung fur internationale Entwicklung (DSE), 116
pp.
Blanchet, T. (1986). “Rural Women, Savings and Credit: An Anthropological
View”. Monograph prepared for USAID, Dhaka.
Bouman, F.J.A. & Hearteveld, K. (1976). “The Djanggi, Traditional form of
Saving and Credit in West Cameron”. Sociologia Ruralis, 16, 1-2, 103-119
Branch, B. & Klaehn, J. (eds) 2002. “Striking the Balance in Microfinance: a
practical guide to mobilizing savings”. Pact Publications; WOCCU.
Abstract: This book grew out of the Savings Best Practices project, which aimed to capture and
share the best practices learned from credit union savings mobilisation programmes in Latin
America. The vast majority of microfinance institutions continue to be lending institutions and it is
thought to be important to introduce a more balanced approach now that emphasises the
centrality of savings in self-sustainable institution development. This book shows in a step-by-step
fashion how to mobilise savings to create more stable and robust MFIs and financial markets.
However, it also made clear that not all MFIs should engage in savings operations. Any MFI that
cannot assure the safety of deposits made with them has no business raising savings from the
public. Topics covered in the book include:
•
•
•
•
Institutional preconditions: testing readiness and achieving sustainability
Savings product management
Product development and marketing: meeting the local demand
Costing savings mobilization and ideas for lowering costs.
BURO, Tangail, (1996). "Sustainable Rural Savings and Credit Programme,
Project Document, Phase IV (1997-2001)", BURO, Tangail, Dhaka.
Campion A. (2001). “Mobilizing small, medium and large savings - motivations
and financial risks”. Small Enterprise Development, Volume 12, Number 3, 1
September 2001, pp. 11-19(9).
Abstract: There are considerable obstacles – regulatory, organizational and financial – for MFIs
contemplating offering savings accounts for the first time. Once an MFI makes the effort to
develop savings products and the operational capacity to manage them, however, it stands to gain
in terms of expanding its financial services while building a more stable and diverse capital base
from which to fund its loan portfolio. This article describes the different types of savings account
that may be offered, and how each account may benefit the MFI and its clients. It outlines how
NGOs, converted banks and credit unions approach savings, and the primary reasons MFIs and
their clients are becoming more interested in savings products. Finally the risks are described that
must be managed by MFIs offering savings products. If managed well, savings can offer MFIs a
chance to expand their operations, improve their reputations among the target clientele and
increase their returns.
125
Carroll, C. & Weil, D. (1994), “Saving and Growth: A Re-interpretation”,
Carnegie-Rochester Conference Series on Public Policy, vol.40.
Carroll, C.; Rhee, B. & Rhee, C. (1994), “Are There Cultural Effects on Saving?
Some Cross-Sectional Evidence”, Quarterly Journal of Economics 109(3), pp.
685-99.
Abstract: Why are there such large differences in saving rates across countries? Conventional
economic analyses have not been successful in explaining international saving differences, so
economists have sometimes suggested that national saving differences may be explained by
cultural differences. This paper tests the hypothesis that cultural factors influence saving by
comparing saving patterns of immigrants to Canada from different cultures. Using data from the
Canadian Survey of Family Expenditures, the authors find no evidence of cultural effects on saving.
CGAP, (1997). “Introducing Savings in Microcredit Institutions: When and How?”
CGAP Focus Note, no. 8 (April).
Abstract: This synopsis of a paper by Marguerite S. Robinson looks at the ways microcredit
institutions can mobilize voluntary savings from the public, potentially the largest and the most
immediately available source of finance for some MFIs.
CGAP and GTZ. (1998). “Savings Mobilization Strategies: Lessons From Four
Experiences”. Washington, DC: Consultative Group to Assist the Poorest (CGAP).
Abstract: Around the world, poor households save in various forms and for various purposes.
Although empirical evidence suggests that the poor would deposit if appropriate financial
institutions and savings facilities were available, little progress has been made to establish MFIs as
full-fledged financial intermediaries. In fact, today most micro-finance institutions (MFIs) offer only
credit, and savings mobilization remains the forgotten half of micro-finance. The CGAP Working
Group on Savings, formed in 1996 and chaired by GTZ (representing Germany), has recently
completed case studies of four deposit-taking MFIs and a related comparative paper. This note
represents a synopsis of these studies.
CGAP Savings Mobilization Working Group (GTZ). (2001). “Developing Savings
Services for the Poor: Preliminary Guidance for Donors”.
Chowdhury, N. (1987), "Household Savings Behaviour in Bangladesh; Issues and
Evidence", in The Bangladesh Development Studies, XV.
Cuevas, C.E. & Campos, P. (2001). “Rural Finance: Savings Mobilization
Potential and Deposit Instruments in Marginal Areas in Mexico”. World Bank.
Abstract: This paper discusses the role of financial markets and the potential of non-bank financial
intermediaries in mobilizing savings in the rural areas of Mexico. The paper:
•
Documents and analyzes the extent and modalities of savings (physical and financial)
practiced by rural households and enterprises;
•
Identifies and analyzes the factors that limit the mobilization of rural savings;
•
Sets forth guidelines for pilot interventions aimed at expanding sustainable savings
mobilization in rural areas.
It concludes that:
•
Successful rural savings mobilization needs to include a strong effort to complete and
perfect the reform of the legal and regulatory framework for non-bank financial
institutions;
•
Capacity building for financial intermediaries expanding into rural areas should consider
piloting of innovative institutional arrangements and linkages.
Deaton, A. (1989), “Saving in Developing Countries: Theory and Review”
Proceedings of the World Bank Annual Conference on Development Economics,
World Bank, Washington DC
Deaton, A. (1991). “Household Savings in LDCs: Credit Markets, Insurance and
Welfare”, Woodrow Wilson School of Public and International Affairs, Research
126
Program in Development Studies, Discussion Paper no. 153, 1991. Also
published in Scandinavian Journal of Economics, 94(2), 1992, pp.253-273.
Dufhues, T.; Geppert, M. & Buchenrieder, G. (2003). “Combining Quantitative
and Participatory Methods in Conjoint Analysis – Designing of Microsavings in
Northern Vietnam”. Savings and Development, Issue no. 3, 2003.
Abstract: More and more microfinance institutions have come to recognize the need to provide
microsavings services both, as a much-valued service by their clients, and as a long-term source
of refinancing capital for themselves. This has led to growing interest in savings, referred to by
(Vogel 1984) as the ‘forgotten half’ of microfinance. Empirical research has shown that the rural
poor save financially. Nevertheless, savings services must be designed appropriately to respond to
the poor’s demand characteristics. Savings in Vietnam were boosted during the last decade.
However, this development has bypassed rural areas. The Vietnam Bank for Agriculture and Rural
Development (VBARD) is the only supplier of savings schemes in rural areas. However, savings
services of the VBARD are not attractive to rural clients. Yet, Vietnam’s rural population has a true
demand for microsavings services; they need to be still further developed. The development of
demand driven microfinance services requires the involvement of the rural poor by participatory
research methods. Conjoint Analysis (CA) is a marketing research method that combines
quantitative and qualitative aspects and requires involving the potential clients in a participatory
process at different stages of the research process. The stages and intensity of target group
involvement in the CA will be analyzed and policy recommendations for the design of demand
driven micro-savings schemes will be discussed. The results of this paper strongly support the
view that rural households in developing countries, even the poor and poorest, demand
microsavings services. This finding contrasts the Vietnamese government’s and the formal financial
sector’s views.
Elser, L.; Hannig, A. & Wisniwski, S. (1999). “Comparative analysis of savings
mobilization strategies”. GTZ.
Abstract: This paper will provide a brief overview of the state-of-knowledge of savings in the
context of microfinance. Section two of the paper will focus on the depositor, presenting the main
factors that determine depositor demand for savings facilities and savings capacity, with special
emphasis on transaction costs.
Section three will concentrate on MFIs and discuss the following topics:
· Institutional requirements for deposit-taking and the effects resulting from it;
· Requirements for cost, liquidity and risk management and their consequences on the financial
institution;
· The regulatory framework and the necessity of self-regulatory measures;
· Forced savings in contrast to voluntary savings;
· The socio-cultural dimensions of financial intermediation;
· Savings compared to other sources of financing; and,
· Timing and sequencing of savings of savings mobilization.
Section four will concentrate on the macroeconomic context and section five will outline
suggestions for further research and donor assistance.
Fiebig, M.; Hannig, A. & Wisniwski, S. (1999). “Comparative analysis of savings
mobilization strategies”. GTZ.
Abstract: Several papers have recently underlined the importance of savings mobilization in the
context of microfinance. Few analyses have been produced, however, that take an in-depth look at
the savings mobilization strategies employed by various institutions and then compare the results.
The CGAP1 (Consultative Group to Assist the Poorest) Working Group on Savings Mobilization has
noted the neglect of savings in microfinance and endeavored to establish a conceptual framework
for the mobilization of microsavings. To address this concern, the Working Group commissioned
several case studies to gain empirical knowledge of different areas pertaining to the subject. This
paper analyzes the savings mobilization strategies of six institutions from Africa, Asia and Latin
America. Through this paper, GTZ hopes to contribute to the important work of perfecting effective
savings mobilization strategies that can be replicated in microfinance institutions across the globe.
The paper will first outline the problem and the respective working hypotheses. It will then provide
a brief overview of the institutional profiles of the selected financial institutions. In a next step, the
results of the comparative analysis in the areas of governance, savings products and technologies,
management capacity, external and internal regulation and supervision, and costs are
summarized. Finally, we will identify remaining information gaps and present the conclusions.
127
Fitchett, D. (1997). “Comparative Analysis of Savings Mobilization Strategies:
Case Study, Bank for Agriculture and Agricultural Cooperatives”. Eschborn,
Germany: GTZ.
Goodwin-Groen, R.; Ruth P. with input from CGAP staff. (2002). “Savings are as
Important as Credit”. CGAP Donor Brief, no. 4 (June).
Goodwin-Groen, R. (2003). “Success in Rural Savings: How One Donor Led the
Way”. CGAP Direct Donor Information Centre. Case Studies in Donor Good
Practices, No. 1.
Abstract: This Donor Good Practices note provides a case study of German Technical Cooperation
(GTZ) in collaboration with the Bank for Agriculture and Agricultural Cooperatives (BAAC) in
Thailand. The short paper highlights that as of December 31, 2002, more than 2.3 million rural
Thais held average savings deposits of 83 euros. These savers were attracted by a new financial
product called “Save and Get a Chance” (Om Sap Thawi Choke). The program rewards savers who
open and maintain savings accounts with prize drawings and parties that celebrate saving. Six
years earlier, when the Bank for Agriculture and Agricultural Cooperatives (BAAC) launched the
product, there were almost no small savers. “Save and Get a Chance” had such phenomenal
success because it was designed specifically for low-income clients. Technical support from
Deutsche Gesellschaft für Zusammenarbeit (GTZ) significantly contributed to this success. For the
24 months it took to develop the product, the German government, through GTZ, paid the salary
of one international financial expert and one local expert, and contributed 50,000 euros in
technical cooperation. The 191 million euros held by rural Thais in savings at BAAC yielded an
impressive return on investment for GTZ and provided BAAC with a sustainable source of
refinance. This case demonstrates good donor practice for developing savings services in nearly
every respect, showing that savings products for the poor benefit both institution and client. The
paper focuses on the keys for project success - be sure the institution can provide safe and secure
savings services, design products that match customer requirements using careful market
research, find ways for the donor and local institution to share costs, and allow sufficient time to
do it right. Furthermore, it suggests internal preconditions for donor success as well as considering
the project benefits for BAAC and its clients.
Hannig, A. (1999). “Mobilizing microsavings: The millennium challenge in
microfinance”. Sixth consultative meeting of CGAP. Abidjan, 21-24 June. GTZ.
Abstract: Microfinance has expanded enormously in the 1990s. In fact, most policy makers,
donors, scientists and practitioners around the world emphasize the role of microfinance as a
powerful tool for poverty alleviation. However, microfinance practice and discussion almost entirely
focus on credit delivery, although almost everywhere poor households save in various forms and
for different purposes. Little progress has been made in building up microfinance institutions
(MFIs) as full-fledged financial intermediaries. The CGAP1 (Consultative Group to Assist the
Poorest) Working Group on Savings Mobilization has noted the neglect of savings in microfinance.
To address this concern, the Working Group commissioned several case studies to gain empirical
knowledge. Considerable efforts were made to disseminate and discuss the findings. In February
1998, the first Regional Conference on Savings in the Context of Microfinance was held in
Kampala, Uganda (CGAP Working Group on Savings Mobilization, 1998). Further regional
conferences on microsavings will be supported by the CGAP Working Group in Latin America and
Asia. In this document, we look first at some elements characterizing the current mainstream of
microfinance policy and practice, underlining the limited role of savings in this debate. Second, the
conceptual framework on microsavings addressing the clients’ as well as the institutional
perspective will be discussed. Third, the conceptual issues identified are analyzed in a comparative
analysis of seven case studies from Latin America, Africa and Asia. Finally, some conclusions are
presented and future areas for research are suggested.
Hirschland, M. (2002). “Savings Operations for Very Small or Remote
Depositors: Some Strategies.” Summary of discussions from the virtual
conference, April 29-May 17.
Hirschland, M. (2005). “Savings Services for the Poor – An Operational Guide”.
Kumarian Press, USA.
Abstract: In Savings Services for the Poor, Madeline Hirschland and other leaders in the
microfinance field provide practical guidance for developing and managing sound savings
operations for small and rural depositors. Drawing on experiences from across the globe, this book
128
addresses two types of institutions: microfinance institutions that want to develop savings
operations and mainstream financial institutions that seek to go “down-market”. Forty single-page
cases illustrate the key technical and management issues faced by banks, cooperatives,
microfinance institutions, and self-help group programs. Practical tools are also provided for
managers to assess an institution’s capacity to mobilize deposits, analyse the market for savings,
develop financial projections and cost saving products, manage liquidity and interest rate risk,
review its internal controls, and develop an incentive scheme for staff dealing with savings
mobilisation. While the book is directed towards financial institutions working on their smallbalance savings operations, its attention to alternative delivery channels should be of interest to
anyone concerned with microfinance for poor and rural markets. J.D. Von Pischke writing in
DevFinance said of this book: "I highly recommend this work as well-structured, authoritative,
comprehensive, issue and solution oriented, and readable. Its three parts include an overview and
sections on services and systems by 20 authors whose names are generally familiar to
microfinance professionals. The subtitle — An Operational Guide — defines the book well, but
content goes far beyond formulas and the possibly mundane reading associated with many
handbooks. Is this sort of thing for everyone in the field? By analogy, several years ago at a
Boulder MFT course supply and demand were not balanced. Some core courses were
embarrassingly oversubscribed while others had few takers. The organizers had a bit of a problem
on their hands, and some participants ended up far from where they expected to be. One in
particular, with considerable seniority in an MFI, was assigned to a week-long course on controls,
which she feared would be utterly boring. But at the end of the week she said, "I thought at the
beginning of the week that I could never stay awake in a course about accounting procedures and
controls. By the end of the week I wondered whether I would ever be able to go to sleep." To
summarize: an education in microfinance is no longer complete without a look at this book."
Hospes, O. (1996). “People That Count: Changing Savings and Credit Practices
in Ambon, Indonesia”. Amsterdam: Thesis Publishers, 299 p.
Huddle, D.L. (1979) “An analysis of the saving behaviour of a group of
colombian artisan entrepreneurs”. World Development, Volume 7, Issues 89, August-September 1979, Pages 847-864.
Abstract: This study shows that an important low income, Colombian subgroup - the artisan - has
high and rising marginal saving rates. This unexpectedly high saving behaviour is explained by
‘own’ investment opportunities of the artisans and high rates of return on simple capital equipment
inventories and educational services. By contrast, the normal low income worker has little
opportunity for ‘own’ investment while the rate of return on bank savings is frequently even less
than the rate of inflation. Saving in this study referred to cash and financial savings, but also to
inventories, equipment, and educational expenditures.
Hyun, K.N. et al. (1979). “Rural Household Savings Behavior in South Korea,
1962-76”. American Journal of Agricultural Economics 61(1979): 449-454.
Jellicoe, M.R. (1968). “Indigenous Savings Associations in Eastern Africa and the
Mobilization of Domestic Savings.” U.N. Economic Commission for Africa E/CN 14
HOU/21.
Khalily, M.A.B.; Meyer, R.L. & Hushak, L.J. (1987). “Deposit Mobilization in
Bangladesh: Implications for Rural Financial Institutions and Financial Policies”.
The Bangladesh Development Studies 15(4): 85-107.
Abstract: Rural deposit mobilization has been given increased emphasis in Bangladesh. This study
examines the pattern and trends in bank deposits with emphasis on rural branches. A
simultaneous equations model was estimated to explain rural deposits. One equation was designed
to explain district deposits and the second explained bank branches. Permanent income and
inflation indirectly influenced deposit through their effect on bank branches. The availability of
roads and vehicles directly affects deposit through their impact on transaction costs. Inflation and
literacy also affect deposit mobilization. Several suggestions are provided for a strategy for rural
deposit mobilization.
Klaehn, J.; Branch, B. & Evans, A.C. (2002). “A Technical Guide To Savings
Mobilization Lessons from the Credit Union Experience”. WOCCU.
Abstract: This guide is intended as an instructional reference for savings institutions interested in
designing, marketing, managing and protecting voluntary savings products. Find out how to:
129
•
•
•
•
•
•
Determine if an institution is ready to mobilize savings
Prepare to capture savings and protect them once captured
Provide what savers most value: safety, convenience and returns
Develop savings products and conduct marketing campaigns
Set market-driven interest rates with real rates of return
Manage savings, ensure liquidity and improve efficiency
Lacoste, J-P. (2001). “What kind of savings products do poor women need? The
experience of SHDF”. Small Enterprise Development, Volume 12, Number 3, 1
September 2001, pp. 59-63(5).
Abstract: SHDF's savings clubs have been operating in Zimbabwe for almost 40 years, allowing
poor women to place their savings in one bank account held by the club. They are popular for their
simple and transparent saving stamp system; however, the average balances in the accounts are
very small. This article examines why women tend to save more in kind than in savings accounts
in Zimbabwe's current economic climate, and also identifies the limits of the current savings
stamps system compared to other types of financial savings. Finally, the author assesses the need
for a new voluntary type of savings, and makes some recommendations to SHDF.
Latif, M.A. (2001) “Microcredit and Savings of Rural Households in Bangladesh”,
The Bangladesh Development Studies, Vol. XXVII, March, No 1.
Abstract: Households in Bangladesh This paper attempts to analyse the effect of microcredit on
household savings. There are over 850 Government and Non-Government Micro Finance
Institutions (MFIs) operating at national or various local levels which provide the rural poor who
are landless or functionally landless with group-based small credit with the objective of increasing
self-employment and income and thereby alleviating poverty. The paper hypothesizes that this
microcredit has positive effects on savings of the participated households. The analysis is done
with the data derived from a sample survey of 2599 households relating to the financial year
1998/99. The households include both programme participants and non-participants. The
hypothesis is tested statistically by controlling for such variables as income and land-ownership
which also influence saving, and found that microcredit has statistically significant independent
effect on household savings. The policy implications that follow from the analysis are to continue
with the programmes and formalize them beyond the land-poor.
Lopez-Murphy, R. & Navajas, F. (1998), “Domestic Savings, Public Savings and
Expenditures on Consumer Durable Goods in Argentina”, Journal of Development
Economics, 57(1), pp. 97-116.
Abstract: This paper shows that when aspects related to public savings and consumer durables are
explicitly measured, there is a considerable reduction in the recent cycle of savings in Argentina.
Both public savings and investment are responsible for sharp changes in domestic savings between
decades, while a great deal of the cycle in private savings is explained by decisions on consumer
durables. An examination of the saving–investment correlation, implicit in an econometric error
correction model, shows a drop over time in both the short run correlation and the speed of
correction of any difference between both aggregates. However, a gap between savings and
investment in Argentina is not a long-term phenomenon, as it is implied in the data and
considering recent observations. Finally, an econometric analysis of expenditures on durables
suggests that both an intertemporal optimization response by economic agents to new economic
conditions as well as elements of exaggerated optimism and pessimism might explain the sharp
cycle in the consumer durables spending that is behind the corresponding cycle in private savings.
Maimbo, S.M. & Mavrotas, G. (2004). “Savings Mobilisation in Zambia: The Role
of Financial Sector Reforms”. Savings and Development, Issue no. 4, 2004.
Abstract: The paper explores the relationship between financial sector reforms and savings
mobilization in Zambia. Although there exists an extensive literature on financial sector
development and savings levels in developing countries, there does not seem to exist satisfactory
work on the above nexus for sub-Saharan African countries, particularly Zambia. Along these lines,
the paper examines the linkages between the financial reforms of the early 1990s and savings
mobilization. It considers the characteristics of banks and non-bank financial institutions,
especially micro finance institutions, and savings levels and identifies problems associated with the
relatively poor performance of savings in recent years and concludes with a set of policy guidelines
for strengthening savings mobilization, highlighting the expected effect on poverty-reducing
growth.
130
Masson, P.; Bayoumi, T. & Samiei, H. (1995), “Saving Behaviour in Industrial
and Developing Countries”, IMF Working Paper No.51.
Maurer, K. (1999). “Comparative Analysis of Savings Mobilization Strategies –
Case Study of Bank Rakyat Indonesia”. Eschborn: Deutsche Gesellschaft für
Technische Zusammenarbeit. GTZ.
Abstract: Bank Rakyat Indonesia (BRI) is one of five state-owned foreign exchange commercial
banks in Indonesia, with primary responsibility for providing rural banking services and, in
particular, for promoting the development of the agricultural sector. Established in 1968, BRI is
the successor to De Poerwokertosche Hulp-en Spaarbank der Inlandsche Hoofden, founded in
1895. BRI has grown to become one of Indonesia's largest banks. As of December 1996, total
assets were US$12 billion, including a net loan portfolio of almost US$11 billion. In terms of
outreach, BRI's branch network is the most extensive of all banks in Indonesia and effectively
covers the entire nation. In addition to four branches abroad, BRI has 320 branches that are
located at the district or municipality level. There are only 296 districts/municipalities in Indonesia.
Furthermore, the bank has an even more extensive network of 3,600 retail outlets at the subdistrict level, known as BRI village units (Unit Desa).5 Although both branches and units are part
of the same organization, the Unit Desa System (UDES) can be clearly distinguished from the
branch network in terms of target groups, services and mode of operation. The branches'
commercial operations cater to well-to-do private and corporate customers in and around district
towns. In addition, BRI branches still administer government-sponsored program loans - some at
concessional interest rates – to priority sectors and target groups, such as farmers, cooperatives,
etc. UDES operates on a full commercial basis, with each unit acting as a semiautonomous entity
serving micro and small customers, predominantly in the rural areas. It is the UDES that has
gained national and international reputation as a success story in microfinance.
Mauri, A. & Calmanti, A. (1983). “A Note on the Role of LDCs Security Markets in
Savings Mobilization”. Journal of Development Studies, Vol. V, pp. 41-50.
Abstract: A widespread debate among development economists and policy makers focuses on the
issue whether setting up securities markets in less developed countries can and will increase their
savings rates and, by this way, generate substantial economic benefits. The paper attempts to
contribute to the debate. The investigation encompasses relationship between development of
securities markets in a backward context and improvement of savings mobilization process, the
latter conceived in terms both of increase of gross private savings rate and of enhancement of the
efficiency in allocating capital resources. The results of the analysis suggest that the opportunities
to expand aggregate savings by establishing securities markets depend on a variety of conditions
and limiting factors related to each socio-economic context. Given that most of these constraints
exist, such opportunities are to be assessed on a case-by-case basis. In conclusion, according to
the Authors, it should not be assumed that the introduction of this innovation in the financial scene
of a less developed country will necessarily and significantly improve savings mobilization process.
Indeed, with particular reference to the early stages of development, it might be observed that the
establishment of security markets it is likely to affect only modestly private savings rates and
resource allocation.
Mauri, A. (1983). “The Potential for Savings and Financial Innovation in Africa”.
Savings and Development, Vol. VII, No. 4.
Abstract: The paper examines the first experiences in savings mobilization achieved in Africa by
specialized financial institutions during the 60s and the structural changes brought about in
financial systems during the 70s. Opportunities for financial innovations as well as institutional
reforms to be implemented in the future are presented and suitable innovative proposals are
discussed. More confidence on the part of the Africans themselves and more efficient mobilization
of the continent's vast untapped potential of natural resources, manpower and savings will be the
key factors in fostering its economic and social development. In this scenario savings and credit
institutions can play a crucial role in mobilizing household savings and in financing productive
investments. A prime objective of governments at the national level, and, on wider dimension, at
international level, should be to encourage these financial institutions to multiply and strengthen in
all African countries. The co-operation that can be provided by savings banks and other European
financial institutions devoted to savings mobilization can be of greatest importance in this respect
particularly as regards research, technical assistance and, above all, personnel training.
131
Mauri, A. (1985). “Institutional and Procedural Innovation in Savings
Mobilization”. Journal of the Ghana Institute of Bankers, Vol. 1, No. 1, pp. 6-18.
Abstract: At the moment when Less Developed Countries (henceforth referred as LDCs) need an
increasing larger volume of resources to foster their economic growth, foreign borrowing proves to
be more difficult and, on the other hand, generates dependence from lender countries. In the face
of these changes in the international scene LDCs authorities have become aware that domestic
resources, and expecially household savings, still largely unexploited of under-exploited, are of
vital importance in the coming decades. But household savings are to be mobilized. The paper
explores, therefore, financial innovations that have proved succesful in promoting household
savings mobilization and concentrates on some significant institutional and procedural innovations.
It concludes suggesting that models borrowed from other institutional context, however, have to
be adapted to legal, cultural and economic domestic conditions of the country where are to be
implanted.
Mauri, A. (1987). "The Role of Financial Intermediation in the Mobilisation and
Allocation of Household Savings in Ethiopia: Interlinks Between Organized and
Informal Circuits". Giordano Dell'Amore Working Paper No. 2.
Abstract: The paper summarises the results of a research on financial intermediation and savings
mobilization undertaken in Ethiopia in mid-80s. It examines firstly financial system reforms
brought about by the Ethiopian socialist regime with the focus on institutional changes and finds
out that restructured formal financial sector proved to be inadequate in promoting and mobilizing
household savings. On the other hand, the informal financial sector has shown itself to be much
more successful in this task. Therefore the paper concentrates on the analysis of the informal
financial sector and explores actual interlinkages between formal and informal financial circuits.
The conclusion suggests feasible actions to be undertaken by authorities with the aim of improving
financial intermediation and household savings mobilization
Matthews, B. & Ali, Ahsan. (2002). “Ashrai: A Savings-Led Model for Fighting
Poverty and Discrimination”. Journal of Microfinance, Vol. 4, No.2.
Abstract: Ashrai is getting results with a savings-led model among minority peoples in northwest
Bangladesh. These people are mostly landless and illiterate, and earn about $50 a year per
person. They are a vital population segment that microfinance institutions in Bangladesh and
elsewhere are unable to serve successfully. Ashrai began its field work ten years ago by replicating
Grameen Bank, but rapidly learned from its clients that they needed savings at least at much as
loans, flexible loan repayment schedules structured around seasonal cash flow, and an easing of
the requirement that loans be for productive purposes. Ashrai takes an innovative approach based
on intensive capacity building to help clients build small, informal financial intermediaries. Savings
mobilization,institution-building, and education/literacy interventions work together to support the
efforts of some of the world's poorest people to build a base of economic power and self-respect.
Mavrotas, G. & Kelly, R. (2001). “Savings Mobilization and Financial Sector
Development: the Nexus”. Savings and Development, Issue no. 1, 2001.
Abstract: The paper seeks to shed more light on the important, though neglected so far,nexus
between saving mobilisation and financial sector development and the significant implications for
poverty-reducing growth in developing countries. This is done by critically evaluating the existing
vast independent literatures on financial sector development and savings mobilisation with a
primary focus on the channels and the mechanisms through which financial sector development
affects savings and thus, the entire growth process. Aspects of the literature which have not been
properly discussed before are also looked at. Furthermore, the paper discusses a new booming
literature on savings mobilisation, namely social security reforms and the way they affect
savings.Finally, we discuss the plethora of formal as well as informal institutions through which
savings mobilisation is influenced in developing countries. The paper is of particular interest to
those studying and/or trying to implement financial sector reforms for saving mobilisation and
sustainable growth in developing countries.
Miracle, M.P.; Miracle, Diane S. & Cohen, L. (1980). "Informal Savings
Mobilization in Africa" Economic Development and Cultural Change, Vol. 28, No.
4, July, pp. 701-724.
132
Mukherjjee, J. & Wisniwski,
W
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FIs
offer only
y credit, and savings mob
bilization rem
mains the forrgotten half o
of microfinan
nce. The CGA
AP
Working Group on Sa
avings, formed in 1996 and chaired by GTZ (representing Germany),
G
ha
as
recently completed
c
ca
ase studies off four depositt-taking MFIs
s and a relate
ed comparatiive paper. Th
his
note represents a syno
opsis of these
e studies.
Osuntog
gun, A. & Adeyemo,
A
R. (1981).. “Mobilisattion of Rurral Savings
s and Cred
dit
Extensio
on By Pre--Cooperativ
ve Organisations in South
S
Westtern Nigeriia.” Saving
gs
and Dev
velopment 5(4), Italy
y.
Otero, M. (1991)). “Saving
gs mobiliza
ation and microente
erprise pro
ogrammes”.
Small Enterprise
E
Developm
ment, Volume 2, Num
mber 1, March
M
199
91, pp. 32
241(10).
Abstract: Microenterp
prise program
mmes can be
e excellent vehicles
v
to fo
oster savings
s among poo
or
populations, with cons
siderable ben
nefits both for those savin
ng and for the
e programme
es themselve
es.
The purpo
ose of this article
a
is to explore
e
issues related to savings mob
bilization from
m the vantag
ge
point of projects
p
that seek to rea
ach poor peo
ople who are self-employe
ed in produc
ctive activitie
es.
Microente
erprise develo
opment proje
ects in partic
cular are the
e focus of th
his study. Th
he first sectio
on
provides background for the discussion, ask
king why people save, and
a
what so
ort of saving
gs
schemes prevail amo
ong poor po
opulations. The
T
second section
s
turns
s to examples of saving
gs
mobilizatiion in microenterprise programmes to
t identify the factors th
hat contributte to succes
ss.
s under whic
Finally, th
he article ide
entifies the circumstance
c
ch mobilizing
g savings ma
akes econom
mic
sense, an
nd provides so
ome approac
ches for future microenterrprise lending
g programmes.
Rahman
n, R.I. (199
98). “Rurall Households' Attitude Towards Savings and
a
Deman
nd
for Savings Servic
ces”. Save the Childre
en USA, Ba
angladesh F
Field Office
e, Dhaka.
Richards
son, D.C. (2003).
(
“G
Going to Ba
arricades with
w
Microsavings Mobilization: A
View of the Real Costs
C
from the Trenches”. The MicroBank
king Bulletin
n, Issue No
o.
9, July 2003,
2
pp. 9-13.
9
Robinso
on, M.S. (1992). "Th
he role off savings in local fiinancial markets:
m
th
he
Indones
sian experrience." GEMINI Wo
orking Pap
per No. 3
33. New York:
Y
PAC
CT
Publicattions.
Robinso
on, M.S. (1
1994) "Sav
vings Mobiilization an
nd Microen
nterprise Fiinance: Th
he
Indones
sian Experrience", in
n Otero, M.,
M
and E.
E Rhyne, The New
w World of
o
Microen
nterprise Finance,
F
K
Kurnarian
P
Press,
We
est Hartforrd, and In
ntermediatte
Technology Publica
ations, Lon
ndon.
Robinso
on, M.S. (1995). “Introducin
“
ng Savings
s Mobiliza
ation in Microfinanc
M
ce
Program
ms: when and
a
how?” unpublishe
ed draft, No
ovember 1995
Robinso
on, M.S. (2
2001). “Savings and the New Microfinanc
ce”. Chaptter 7 in Th
he
Microfinance Revo
olution, Washington, D
D.C.: World
d Bank, 20
001.
Rutherfo
ord, S. (19
998). "The Savings off the Poor: Improving
g Financiall Services in
i
Banglad
desh", Jourrnal of Inte
ernational D
Developme
ent, Vol: 9, Issue: 3. London.
Abstract: The capacitty of the po
oor of Bangladesh to save is surpriz
zingly large - surprizing to
t
s, and surpriz
zing to the poor
p
themselv
ves. This cap
pacity has lon
ng been used
d, with mode
est
observers
success, as
a the basis for self-help savings-and
d-loan devices
s that the po
oor (like othe
ers) have use
ed
in the absence of form
mal banking services. Bu
ut over the la
ast twenty ye
ears an innovative form of
financial service
s
provision has bee
en developed in Bangladesh by micro
o-credit institutions (MCIs)
such as th
he Grameen Bank, BRAC and ASA which has exploited this capa
acity to save,, to the beneffit
of millions of rural people, and at the same time brought profits to the MCIs. Splendid though this
development has been, it could be more splendid. For under the systems adopted by the MCIs who are fundamentally lenders rather than financial intermediaries - the poor can exploit their
capacity to save only by going into debt. This paper argues that a shift in approach would allow
the MCIs to offer a much better service to a broader range of customers (including the very poor),
and bring surprizing benefits to themselves as well.
Rutherford, S. (1999). “Savings and the Poor: The Methods, Use and Impact of
Savings by the Poor of East Africa”, mimeo prepared for MicroSave-Africa.
Schreiner, M. (2005). “Measuring Savings”. Savings and Development, Issue no.
1, 2005.
Abstract: Development depends on saving. But what exactly is saving, and how is it measured?
This paper defines saving and describes several measures of financial savings in the context of
Individual Development Accounts, a new policy idea that provides matches for poor people who
save for home purchase, post-secondary education, and microenterprise. The proposed measures
of savings take into account the passage of time and the three stages of saving: putting in
(depositing), keeping in (maintaining a balance), and taking out (withdrawing). Together, the
measures help describe how people move financial resources through time.
Sen, B. (1996). “Rural Savings and Investment: Trend and Determinants”, in
Rahman, H.Z.; Hossain, M. & Sen, B. (eds.) 1987-1994 ‘Dynamics of Rural
Poverty in Bangladesh’. BIDS, Dhaka.
Tanzi, V. (1976). “Fiscal policy, Keynesian economics and the mobilization of
savings in developing countries”. World Development, Volume 4, Issues 1011, October-November 1976, Pages 907-917.
Abstract: This paper argues that the uncritical transplanting of the basic Keynesian framework —
which was developed for other situations and other institutions — to the developing countries has
provided support and/or justification for policies which may have retarded the development of
these countries. It is argued that the model implicit in those policies has been too aggregative, too
simple, politically naive, and too oblivious to important interrelationships among macro variables.
It is concluded that classical economics can still provide a useful framework for determining
desirable policies in developing countries.
Tanzi, V. (1991). "Mobilization of Savings in Eastern European Countries: The
Role of the State". IMF Working Paper No. 91/4.
Abstract: As the countries of Eastern and Central Europe transform their economies from centrallyplanned to market-oriented, the question of the role that the governments should play in
mobilizing savings to ensure a high growth rate must be addressed. This paper argues that the
issue of a good allocation of savings must precede that of mobilization. Much evidence suggests
that major distortions have, in the past, dramatically reduced the productivity of investment. The
paper discusses some of the institutional changes that will be necessary to ensure a better
allocation of savings.
United States Agency for International Development. (USAID). (1991).
“Mobilizing Savings and Rural Finance: The AID Experience”. Washington, DC.
Abstract: This book considers the innovations in rural finance that have accrued from years of
research and experimenting within the Agency for International Development (A.I.D.), in relation
to small farm credit. The chapters trace A.I.D.'s experience in the area of agricultural credit and
the agency's endeavours to explore problems and solutions. To illustrate how A.I.D. innovations
can be used to address country-specific financial problems, the book has four chapters which focus
on A.I.D.'s Experimental Approaches to Rural Savings (EARS) projects. These chapters are case
studies that explore the lessons learned from EARS projects in Honduras, the Dominican Republic,
Bangladesh and Niger. The final chapter suggests guidelines for addressing rural financial issues
with two specific project objectives in mind: strengthening rural financial markets and targeting
credit to agriculture. Issues which need to be addressed include: the conduciveness of the
macroeconomic environment to the setting up of financial markets; the basis for a rural financial
market; the utilization of existing financial institutions; whether the target population needs credit;
effective targeting; and ensuring the viability of rural financial institutions.
134
USAID. (2005). “Innovations in Rural Deposit Mobilization”. RAFI Notes (Rural
and Agricultural Finance Initiative) Issue 9.
Abstract: This Rural and Agriculture Finance Initiative (RAFI) Note summarizes several recent
innovations to mitigate the common constraints to rural savings mobilization by drawing from
experiences of USAID programs in Madagascar and the Philippines. It also highlights key lessons
learned and their transferability to other country contexts.
Vogel, R.C. (1984). “Savings Mobilization, the forgotten half of rural finance”. in
Adams, Graham and Von Pischke, J.D. (eds.) Undermining rural development
with cheap credit, Westview Press.
Vogel, R.C. & Burkett, P. (1986) "Deposit Mobilization in Developing Countries:
The Importance of Reciprocity in Lending" The Journal of Developing Areas 20,
July, pp. 425-438.
Vonderlack R.M. & Schreiner, M. (2002). “Women, Microfinance, and Savings:
Lessons and Proposals”. Development in Practice. 12(5): 602-612.
Abstract: Microfinance--both credit and savings--has potential to improve the well-being of poor
women in developing countries. This paper explores practical ways to achieve that potential. Based
on lessons from informal savings mechanisms that women already use, the paper proposes two
savings services designed to address the development issues that confront women. The proposals
call for safe-deposit boxes and for matched savings accounts for health care or education.
Waterfield, C. & Duval, A. (1996). "CARE Savings and Credit Sourcebook".
CARE.
Wise, H.M. (2004). “Cajas Externas in Bolivia: A Stategic Alliance to Increase
Savings in Under-Served Markets”. Washington, DC: SEEP, Paper presented at
the 2004 AGM SEEP Meetings at the Innovations in Rural Finance training
session, October 26, 2004 (Presentation).
Wisniwski, S. (1997). Savings in the Context of Microfinance: Lessons Learned
from Six Deposit-Taking Institutions. Eschborn, Germany: GTZ.
Wisniwski, S. (1999). “Microsavings compared to other sources of funds”.
Eschborn, Germany: GTZ.
Abstract: The case studies in this volume provide convincing evidence that the microfinance sector
is by far not only a credit market. Against the widespread belief that poor people cannot save,
there is a tremendous demand for savings products. Experience has shown, however, that it is not
enough for a financial institution to design savings products and bring them on the market to
successfully enter into the deposit business. In order to take full advantage of savings as a source
of funds, microfinance institutions (MFIs) have to be aware of the implications regarding costs and
risks involved with the deposit business. The following paper discusses the various aspects of
savings as a source of funds compared to other sources of funds as equity, commercial loans,
grants and others. Starting with an examination of the liabilities structure of traditional banks and
non-bank financial institutions, the specific risks involved in funds management are reviewed in a
second step. Finally, the differences between the funding strategy of MFIs and traditional financial
institutions are examined to provide insights into the existing obstacles for commercializing and
"popularizing" the sources of funds in MFIs.
Wright, G.A.N. et al. (1997). "Savings: Flexible Financial Services for the
Poor" in Wood, G.D. & I. Sharif (eds.) Who Needs Credit? Poverty and Finance
in Bangladesh UPL: Dhaka and Zed Books: London.
Abstract: The paper reviews some of the experiences of providing flexible financial services to the
poor both in Bangladesh and abroad. In Bangladesh, the large MFIs are using compulsory savings
as a source of capital for loans, but there is increasing pressure from the members' for access to
their savings. This apparent dilemma may not be real, since experience suggests that open access
and other flexible savings facilities may well increase the net savings deposited. BURO, Tangail has
135
implemented a programme that, in contrast to the large MFls in Bangladesh, emphasizes savings
instead of credit and provides its members with open access to their savings. The study carried out
by the authors tried to determine and describe what contribution these savings facilities have
made to providing important and valued financial services to the members, and to capitalizing the
organization's activities. The authors conclude that the poor want and need flexible savings
facilities. Government authorities and the large MFls should be less concerned with reducing the
rate of interest charged on loans, and more with providing secure, open access saving facilities to
the poor. BURO, Tangail's programme suggests that voluntary open access savings can raise funds
not dissimilar to those levied through the mainstream MFls' compulsory savings schemes. More
research is needed to see if indeed such schemes can attract even more savings deposits than the
compulsory counterparts. The paper concludes that this could be the beginning of a new era in
Bangladesh when the large MFls provide a wider range of financial services to a broader spectrum
of people and thus improve the indigenous capitalization of their systems. And, noting the risks
when less well established MFls begin savings mobilization, the paper makes a plea for the
development of depositor protection schemes.
Wright, G.A.N. (ed.) (1999). “Savings in Africa: Remembering the Forgotten
Half of Microfinance”. MicroSave Africa.
Abstract: Savings have risen to the top of the microfmance community's agenda. Previously
MicroFinance Institutions (MFIs) viewed 'savings' as the poor relation, Vogel's "forgotten half, and
typically extracted savings from clients only through compulsory systems. There was a prevalent
and powerful perception that "the poor cannot save", thus compulsory savings systems often
required members to deposit small token amounts each week and levied more substantial amounts
at source from loans. These compulsory savings were then often "locked-in" until members left the
organization. However, these compulsory, locked-in savings systems have come under increasing
criticism not only from the professionals involved with financing, managing and reviewing MFIs and
but also from the clients themselves. This is driven by the fact that, in the words of Marguerite
Robinson1 (1995), "There is substantial evidence from many parts of the world that: 1)
institutional savings services that provide the saver with security, convenience, liquidity and
returns, represent a crucial financial service for lower income clients; and 2) if priced correctly,
savings instruments can contribute to institutional self-sufficiency and to wide market coverage."
This book brings together a series of papers by leading microfmance practitioners and researchers
to examine the need of poor people for savings services and how the lack of suitable savings
programmes drives large-scale "drop-out" or "exit" of MFI clients. By examining how and why poor
people currently save money - predominantly in the informal financial sector, the experts go on to
make recommendations on how MFIs might offer savings services for poor people. The book is a
timely attempt to bring together some of the "state of the art" research and thinking on this
emerging issue for the microfmance industry.
Wright, G.A.N. (2003). “Designing Savings: Equity Building Society’s Jilenge
Savings Accounts”. The MicroBanking Bulletin, Issue No. 9, July 2003, pp. 2932.
Zaman, H. et aI. (1994). "Current Accounts for the Rural Poor: A Study of
BRAC's Pilot Savings Scheme". BRAC Research and Evaluation Division Report,
Dhaka.
Zapata, G. (2002). “Community Savings Funds: providing access to basic
financial services in marginalised rural areas of Mexico”. Journal of Microfinance,
Vol.4, No.2.
Abstract: The Community Savings Funds (CSFs) promoted by the Ministry of Agriculture in Mexico
seek to provide marginalized community groups with a simple mechanism that allows them to
save and administer their own funds securely, efficiently, and profitably, according to their own
needs and priorities. Specially trained promoters help set up CSFs for a period of one year—using
a standardized Toolkit—after which they are expected to work autonomously. The CSF Project does
not focus exclusively on providing credit for productive activities. People in marginalized rural
areas have many consumption needs at different times of the year which often do not coincide
with the times when returns from productive activities are available. In response to this need, the
vast majority of CSFs have decided to grant credit for consumption requirements. This has proven
very attractive to members—so much so that many members choose to take credit to meet
consumption needs rather than withdraw from their savings. The Administrative Toolkit is a
standardized, yet flexible, kit used by every CSF for adequate record-keeping. CSFs receive no
seed capital or external financial support other than training. The main service a CSF provides is,
136
as its name indicates, savings collection. CSF members generally set a minimum amount of
systematic savings that must be deposited by each member either weekly or fortnightly. Members
themselves determine both the amount and the frequency of deposits. Keeping the cash safe is
risky in a marginalized rural setting. Given that reliable financial intermediaries are generally not
available in these areas, CSFs’ surplus income is either lent out to non-members; kept in a safe
deposit box with 2–3 different locks, for which an equal number of members have one key;
deposited in a bank account whenever a member happens to go to the nearest town; or kept by
the treasurer in case someone has a need for an emergency loan. The CSFs are currently outwith
the provisions of the Popular Savings & Credit Law, passed in 2001, to regulate non-bank financial
institutions that take deposits but reforms are underway. The Ministry of Agriculture realizes that it
is short-sighted to pursue a strategy that promotes the unregulated proliferation of autonomous
CSFs. So rather than promoting hundreds of CSFs in remote villages—whose follow-up by
individual promoters would be very difficult—the new strategy envisages the creation of CSFs
networks by linking new or existing CSFs to each other to form a formal financial intermediary in
its own right, particularly in areas where no such services exist. Another option is to work through
already established farmer organizations with an interest in providing financial services to their
members, subsequently constituting themselves as a formal financial intermediary if they are
willing and able to do so, or identifying existing formal financial intermediaries that are interested
in incorporating CSFs as clients or members or turning them into a branch or service desk.
ˆ Sustainability
Brand, M. & Gerschick, J. (2000). “Maximizing Efficiency in Microfinance: The
Path to Enhanced Outreach and Sustainability”. ACCION International.
Abstract: This long paper, from September 2000, ambitiously sets out to provide a framework by
which microfinance institutions (MFIs) can identify and improve efficiency in their operations. The
authors point out that as the microfinance market diversifies, customers become increasingly
knowledgeable and interested in improved service, which is natural. This paper aims to assist MFI
managers and policy-makers at this second stage of development. The authors set out methods of
enhancing efficiency (though this is not a manual of operational accountancy), offering a brief but
concise overview of the current state of affairs and the challenges confronting MFIs in increasingly
crowded and competitive markets. Chapter two offers a primer on understanding and calculating
administrative and operational costs, and suggests a method of calculating efficiency. It considers
the benefits and flaws of financial analysis, and ends with a discussion of ways of allocating costs
and revenues for ongoing efficiency evaluation. Chapter three considers different approaches to
improving efficiency, and uses a number of different examples, mostly from Latin America, to
illustrate how MFIs can be successful. The authors introduce their main efficiency-increasing tool "Alignment Theory" - in this chapter. This is a way of looking at an MFI with a focus on how wellaligned the different functions of the MFI are in terms of mission, target market, strategy, and
deployed resources. Methods of decreasing cost in delinquency management, payment collection
and underwriting are described and evaluated. The chapter concludes with a look at technologies
which may make the difference between an MFI’s sustainability and its failure. The fourth chapter
focuses on reengineering – retooling an MFI to improve efficient function – and provides three
detailed case studies of success stories, from ACCION New York, BancoSol in Bolivia and Mibanco
in Peru. The final chapter reviews the key concepts of the paper and offers a practical hands-on
guide to putting the ideas of the authors into practice to improve efficiency. The authors
themselves identify the third chapter as the “heart of the paper”, but many readers will find the
last two chapters more useful: the first three chapters establish the theoretical structure of the
authors’ ideas but chapters three and four provide the necessary illustration and step-by-step
advice about how to restructure and improve MFI efficiency. Each successive chapter refers to the
chapters before, and the paper builds a complex and nuanced argument in favour of its methods
for increased efficiency. Most of the authors’ suggestions are sensible and the paper’s no-nonsense
approach makes its explanations clear and brief.
CGAP. (1995). “Maximizing the Outreach of Microenterprise Finance: The
Emerging Lessons of Successful Programs”. Focus Note No. 2.
Abstract: Eleven microenterprise finance programs are examined from two perspectives, outreach
and financial sustainability. Based on James Fox's summary an in-depth study of the same name
authored by Robert Peck Christen, Elisabeth Rhyne, Robert C. Vogel, and Cressida McKean.
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CGAP, (1996). “Financial Sustainability, Targeting the Poorest, and Income
Impact: Are There Trade-offs for Micro-finance Institutions?” Focus Note No. 5.
Abstract: Thirteen MFIs in seven countries examine the trade-offs they made between
sustainability and poverty outreach. It is a summary of David Hulme and Paul Mosley, Finance
against Poverty.
CGAP. (1996). “Microcredit Interest Rates”. Occasional Paper No. 1, revised
December 2002.
Abstract: This paper explains how an MFI should estimate the interest rate on its loans if the
institution wants to become sustainable; how to calculate the effective interest yield on loans; and
what different loan and repayment methods are used to determine the true rate of interest income
received by an MFI. The paper also discusses evidence that MFI clients are capable of paying high
interest rates, concluding that MFIs should charge clients a rate high enough to ensure their own
sustainability.
CGAP. (2002). “Making Sense of Microcredit Interest Rates”. Donor Briefs No.6.
Abstract: This donor brief highlights some of the key issues related to microcredit interest rates
and the role of donors. As interest rate subsidies are often a part of financial policy, this brief
addresses when and how subsidies are appropriate.
CGAP. (2003). "Scoring: The Next Breakthrough in Microcredit?” Occasional
Paper No. 7.
Abstract: Scoring is a new way to judge the risk of whether the self-employed poor will repay their
microcredit debts as promised This paper discusses how scoring works, what microlenders can
expect from it, how to use it, and what its implications are for microcredit.
CGAP. (2004). “Interest Rate Ceilings and Microfinance: The Story So Far”.
Occasional Paper No. 9.
Abstract: This paper outlines the rationale for higher microcredit interest rates, the historical
performance of subsidized lending, and the impact of interest rate ceilings on microfinance clients.
It includes recommendations for fostering lower microcredit interest rates through competition and
consumer protection without imposing interest rate ceilings.
CGAP. (2006). “Competition and Microcredit Interest Rates” CGAP Focus Note
No. 33, February.
Abstract: Abstract: Does competition result in lower interest rates to microcredit customers? To
address this question, this Focus Note analyses the experiences of Uganda, Bangladesh, and
Bolivia, home to some of the early regional and even global pioneers of microcredit.
Christen, R.P.; Rhyne, E. & Vogel, R.C. (1994). “Maximising the Outreach of
Microenterprise Finance: the Emerging Lessons of Successful Programs”.
IMCC/USAID paper.
Dermirguc-Kunt, A. & Huizinga, H. (1999). "Market Discipline and Financial
Safety Net Design." Policy Research Working Paper # 2183. The World Bank.
Abstract: It is difficult to design and implement an effective safety net for banks, because
overgenerous protection of banks may introduce a risk-enhancing moral hazard and destabilize the
very system it is meant to protect. The safety net that policymakers design must provide the right
mix of market and regulatory discipline - enough to protect depositors without unduly undermining
market discipline on banks. There has been little empirical work on the effectiveness of safety
nets designed for banks, for lack of data on safety net design across countries. Demirgüç-Kunt and
Huizinga examine cross-country data on bank-level interest expense and deposit growth for
evidence of market discipline in individual countries. In addition, using cross-country information
on deposit insurance systems, they investigate the impact of explicit deposit insurance (and its key
features) on bank interest rates and market discipline. They find that:
138
· Many countries retain some degree of market discipline, regardless of the type of safety net.
· The existence of explicit deposit insurance lowers banks' interest expenses and makes interest
payments less sensitive to bank risk factors, especially bank liquidity.
· Higher explicit coverage, broader coverage, and the existence of an earmarked insurance fund
increase required-deposit rates and reduce market discipline.
· Government provision of funds lowers deposit rates but also reduces market discipline.
· Private (especially joint) management of insurance schemes lowers deposit rates and improves
market discipline.
Duquet, S. (2006). “Improving MFI Performance in Competitive and Saturated
Environment”. Planet Finance.
Abstract: The paper suggests that the profitability rationale (the establishment of commercial,
profit-making microfinance models) has led to an increase in the number of sustainable MFIs and
has often driven the same microfinance institutions towards more easily-accessible economic
activities and zones in order to limit operational expenses. It notes that rural zones in particular
have been neglected for urban areas where operational expenses are lower. It is argued that this
is especially true as a high concentration of competition in some geographic zones and in a
number of countries has led to a gradual observation that the diversity of MFI programmes in very
competitive markets yields both positive effects (low interest rates, diversification of offer,
proximity, etc) and negative effects (higher risk, overindebtedness, occasional unfair competition
and profit search geared towards profitable clients). An environment is said to be saturated and
competitive according to a number of factors. These include the presence of many MFIs in one
geographic zone, a range of financial services for local microentrepreneurs, MFIs difficulty in
accessing new clients or retaining existing ones (high desertion rate), competition between MFIs
for new clients, clients committing to multiple MFIs, etc. There are a number of indicators, but the
paper points out that the central point is that in such an environment , the offer of financial
services, especially loans, is higher than the actual microentrepreneurs’ demand. In setting out
how the performance of MFIs can be improved in a competitive and saturated environment, this
paper is based around the following 4 main topics:
•
•
•
•
Ensuring fair competition
Controlling the effects of competition on the interest rates
Avoiding cross indebtedness: the cause of overindebtedness
The consequences of regulation: implementing a suitable legal context
Duval, A. (2004). “The Impact of Interest Rate Ceilings on Microfinance”. CGAP
Donor brief No. 18.
Abstract: This donor brief notes that interest ceilings are found in many countries throughout the
world. With the expansion of microfinance in developing countries, many legislators and the
general public have found it difficult to accept that small loans to poor people generally cost more
than normal commercial bank rates. The brief argues that though meant to protect consumers,
interest rate ceilings almost always hurt the poor. The first question considered is whether is
whether interest rate ceilings are an effective way to protect the poor? The discussion includes
anecdotal evidence from Nicaragua, West Africa and South Africa. Given the conclusion mentioned
above, the brief then moves on to look at alternative ways to protect consumers, where it
discusses consumer protection laws or schemes, public disclosure of loan costs, and efficiency,
scale and competition. Finally, the discusses the actions donors can take in relation to interest rate
ceilings – set a good example, inform and educate policy makers, support transparency and
standard reporting, including an emphasis on efficiency and to foster growth and competition.
Fernando, N.A. (2004). “Microfinance Outreach to the Poorest: A Realistic
Objective?” Finance for the Poor: Vol. 5 No. 1. ADB.
Abstract: This article from the Asian Development Bank newsletter ‘Finance for the Poor’ identifies
three camps of thought on the issue of financial services for the poorest. The different assumptions
and arguments of each camp is examined to see if they are valid. The core issue is whether it is
realistic to expect that microfinance services can be provided to the poorest on a sustainable and
large-scale basis. This article does give a useful overview of the problems faced in providing
financial services for the poorest and makes the crucial point that financial services do not create
economic opportunities; they only allow people to take advantage of economic opportunities
created by other interventions. The author concludes that to reach the poorest, it is necessary to
design appropriate products and innovative delivery mechanisms that can enable financial services
to be provided at affordable prices. Strong institutions are also needed, together with adequate
investment in social and physical infrastructure. This is a good quotation, which is cited in the
139
article: "Credit should be a lubricant for the engine of feasible and profitable activities; if the
lubricant is mistaken for the engine, the borrower may end up in a debt trap."
Fernando, N.A. (2006). “Understanding and Dealing with High Interest Rates on
Microcredit”. ADB.
Abstract: In this brief document, Nimal Fernando defends the high interest rates currently charged
by microfinance institutions and cautions against policy interventions (such as an interest rate
ceiling). His main points are summarized below:
•
•
•
•
•
Just like any business, MFIs must charge prices high enough to cover their costs
Concessional funds (donor funds) cannot be seen as a permanent source of funding for
MFIs and provision must be made through interest rates to sustain the lenders’ operations
Because of the vast difference in transaction costs and sizes of microfinance loans it is
inappropriate to compare them to conventional loans
A rate ceiling will prevent lenders from recovering costs and cause a flight of lenders form
the markets, depriving microfinance customers of adequate service providers
Empirical evidence shows that liberal interest rate policies breeds strong growth in the
microfinance industry, whereas interest rate regulation does not
In conclusion, Fernando states: Microcredit interest rates are high because microlending remains a
high-cost operation. The key to reducing these rates in a sustainable manner is to reduce costs
through improved market competition, innovation, and efficiency. Interest rate ceilings are not an
appropriate intervention, and there are no quick solutions or shortcuts. To provide affordable
finance to poor households in Asia and the Pacific, policy makers need to recognize, and rectify
impediments such as a lack of physical, human, and financial infrastructure, promote competition
and efficiency, and be proactive in providing an enabling environment for MFIs to develop in a
sustainable manner.
Gobezie, G. (2004). “Subsidizing Microcredit Interest: How Important Is It to the
Poor?”
Abstract: Ethiopia is characterised by a high degree of poverty among the population. Although
Government strategy identifies microfinance as a good entry point for achieving development
objectives and there are 23 licensed MFIs in operation, only a small proportion of people have
access to their facilities. Thus the rural financial landscape remains dominated by informal
mechanisms. The Amhara Credit and Savings Institution (ACSI) was established in 1997. By
September, 2004 it had over 337,000 active loan clients but the estimated potential market in the
region is about 2.9 million clients. This paper, which has been written by the Head of the ACSI
Planning and Monitoring Department, explores how reaching out to more clients in remoter areas
will increase operational costs, particularly in light of the level of support that the poorest clients
need. However, ACSI has continued to commit itself to a low interest rate, namely 12.5%, even
though the transaction costs of providing microcredit in remote and isolated areas are much higher
than those for providing standard commercial loans. The author questions this policy and observes
that subsidising the interest paid by clients usually has a counterproductive role by reducing the
very "access" by the poor that it sets out to promote. In conclusion this paper suggests that while
setting a realistic interest rate should not be a licence for higher costs and inefficiency, if an MFI is
to offer its financial services to poor and marginalised people living in remote and peripheral rural
areas (with non-existent, inadequate or defective infrastructure) and who require very small loan
sizes and hence high transaction costs, interest rate capping should not constitute a bottleneck.
Gonzalez-Vega, C. (1983). “Arguments for Interest Rate Reform”. In ed. Rural
Financial Markets in Developing Countries, J. D. Von Pischke, D. W. Adams, and
G. Donald. Baltimore, Md.: The Johns Hopkins University Press, 1983.
Khalily, M.A.B. (1996). "A Note on the Sustainability of Small and Medium NGOs
in Bangladesh", prepared for the World Bank, mimeo, January.
Khandker, S.R.; Khalily, M.A.B. & Khan, Z.H. (1996). “Grameen Bank:
Performance and Sustainability”. In Credit Program for the Poor: Household and
Intrahousehold Impacts and Program Sustainability, edited by Shahidur R.
Khandker, M.A. Baqui Khalily, and Zahed H. Khan. Dhaka: Bangladesh Institute
of Development Studies. p. 11-134.
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Abstract: The Grameen Bank, in Bangladesh, has attracted worldwide attention by providng small
loans to the rural poor and recording high repayment rates. It has over two million members
spread over 35,000 villages, 94 percent of whom are women. The paper discusses what the
Grameen Bank is, what it does for the rural poor and at what costs,its sustainability as well as its
potential for expansion and replicability. The Grameen Bank's success as a bank is only sustainable
if it is institutionally, economically and financially viable, and also if it generates sustainable
benefits to borrowers that help reduce poverty. Subsidized funds and grants were instrumental for
outreach and institutional development of the Grameen Bank. However, over time it has
demonstrated its ability to operate with resources from the market, relying less on subsidized
funds. The Grameen Bank has recorded loan recovery rates above 90 percent consistently and has
had a positive impact on rural wages and poverty reduction, which indicates that the benefits to its
borrowers from program participation must be sgnificant and sustainable. The long-run
sustainability of the Grameen Bank in Bangladesh ultimately depends on its ability to expand its
lending for more growth-oriented activities and achieve cost efficiency on a sustained basis. The
Grameen Bank's achievements has led to its many replications in over forty countries and the
World Bank has taken the initiative to sponsor Grameen-type schemes. Successful replications
would depend not only on subsidized resources initially, but also on committed and dynamic
leadership that is able to carve out market niches.
Khandker, S.R. & Khalily, M.A.B. (1996). “The BRAC’s Credit Program:
Performance and Sustainability”. In Credit Program for the Poor: Household and
Intrahousehold Impacts and Program Sustainability, edited by Shahidur R.
Khandker, M.A. Baqui Khalily, and Zahed H. Khan. Dhaka: Bangladesh Institute
of Development Studies. p. 135-246.
Meyer, R.L. (2002). “The Demand for Flexible Microfinance Products: Lessons
from Bangladesh”. Journal of International Development 14, no. 3: 351-68.
Abstract: This paper examines literature that shows the decline in horizontal expansion of
microfinance in Bangladesh. Dropouts, overlaps and delinquencies appear to be rising, many of the
poor refuse to use microfinance institution products and informal sources continue to be important
for poor households. In order to combat these challenges, MFIs need to re-engineer their products
and policies, based on careful market research and pilot testing, and focus on quality of service
rather than quantity of outreach. Possible changes in policy and products include: a) adjustment of
repayment schedules, b) adjustment of loan sizes, c) differential loan pricing and d) expansion of
product line. Impediments to these changes may result from any of the following: commitment to
the status quo, cost and complexity of change and innovation, competition and the financial
system. While the MFIs in Bangladesh have enjoyed a reputation as leaders in the microfinance
industry, they now need to move into the next phase of supplying demand-driven financial
services.
Micro-Credit Ratings International Limited. (2005). “Client Drop-Out Rate”.
Abstract: This short technical note begins by stating that the client drop-out rate is a major factor
affecting the sustainability and growth of MFIs. The rate is a reflection of the relationship between
the MFI and its clients. Monitoring the trend in the drop-out rate could yield valuable insights on an
MFIs performance and credibility, as drop-outs could be a cause as well as an effect of factors
internal and external to the organisation. The purpose of this note is to suggest a working
definition of the phenomenon of client drop-out rate which has field relevance and is operationally
convenient for MFIs rather than based on detailed research and needing elaborate methodologies
to establish and measure. The note proposes a formula to calculate the drop-out rate from the
simple records that MFIs generally maintain. For the purpose of reaching a definition and to derive
a working formula, various definitions and calculation methods are discussed in the note. As such,
the note comments on various methods for calculating client drop-out and arrives at the formula
adopted by M-CRIL.
Morduch, J. (2005). “Smart Subsidy for Sustainable Microfinance”. Finance for
the Poor, Volume 6 Number 4.
Abstract: This article begins by noting that worries about the dangers of excessive subsidisation
have driven microfinance conversations since the 1980s. It suggests that from this time the goal of
serving the poor has been twinned with the goal of long-term financial self-sufficiency on the part
of microbanks. The starting point for the article in considering smart subsidies is recognising that
the same forces driving efficient outcomes in free markets – i.e. hard budget constraints, clear
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bottom lines, and competitive pressure – can also be deployed in contexts with subsidies.
Furthermore, it argues that if deployed well, there are circumstances in which subsidies can
increase the scale of microfinance outreach, access to commercial finance, and depth of outreach
to the poor. At the same time, however, the article does highlight that over reliance on subsidies
and poorly designed subsidies can limit scale and undermine incentives critical to building strong
institutions. The concept of a “smart subsidy” stems from the proposition that subsidies are neither
inherently useful nor inherently flawed. The article states that a smart subsidy maximises social
benefits while minimising distortions and poor targeting. The article begins by setting out three
reasons for an opening to broader deployments of subsidies. Firstly, it notes that use of subsidies
remains an ongoing part of the financial strategies of many microfinance institutions (MFIs).
Secondly, it points to the argument that subsidisation is unlikely to end soon. Finally, the article
sets out a number of analytical concerns. The discussion then moves on to suggest that smart
subsidies should “crowd in” funding from donors rather than “crowd out”. The article also considers
the importance of subsidies in the start-up phase, both for institutions as well as for customers.
For institutions, the article presents the argument that start-up subsidies have the relative
advantage of being for a limited time-period and relatively transparent, thus reducing the fear of
dependency. However, the paper does also put forward the case that the notion of a “start-up”
subsidy could be expanded to incorporate major expansions. From the customers perspective, the
article points to the example of BRAC (in Bangladesh) subsidising potential clients, through its
Income Generation for Vulnerable Group Development (IGVGD) program, who were not yet ready
to borrow from microlenders at “market” interest rates. The conclusion stresses that in general,
subsidies should be time-limited and rule-bound. It also notes though that if smart subsidies are
deployed in the hope of producing demonstrable social impacts, those impacts should be measured
using rigorous statistical analyses.
Pagura, M. (2003). “Examining Client Exit in Microfinance: Theoretical and
Empirical Perspectives”. Dissertation, Presented in Partial Fulfillment of the
Requirements for the Degree Doctor of Philosophy in the Graduate School of The
Ohio State University.
Abstract: Repeat borrowing is critical for the long-term viability of microfinance organizations
(MFOs), which provide invaluable financial services to low-income households in developing
countries. Repeat borrowers reduce MFO administrative costs, lower risks, and increase
organizational productivity. In practice, however, several MFOs worldwide are experiencing high
borrower exit, i.e., termination of the lender-client relationship, which hamper organizational and
financial sustainability. This dissertation sets out to determine and analyze the factors that
influence borrower/client exit. A choice theoretic dynamic model and duration methods are
developed and used to accomplish this goal. In the choice theoretic dynamic model, a firm wants
to maximize profits over her life cycle by investing in her business on an on-going basis. To do this
she strives to establish a long-term relationship with a formal bank; however, she lacks the
necessary physical collateral required by the bank to obtain loans. Instead, she engages in a suboptimal strategy of group-lending in which she is jointly liable for her own repayment as well as
her co-members’ payments in the event they cannot repay their loan shares. However, if the
group demonstrates good repayment behavior, i.e., never defaults, after n loan cycles, then the
members are rewarded with an admission into an individual loan program. There are two types of
firms in this economy, high and low ability. Her rewards are greater if she picks a high ability type
partner than if she chooses a low ability type since high types succeed more often than low types.
Due to uncertainty about fellow partner ability type, i.e., high or low, the optimizing firm forms a
belief about her partner’s type and uses Bayes’ Rule to update this belief each period based on
business outcomes that she observes. Each period the firm has an option to stay in the borrowing
relationship with her partner or exit, i.e., terminate the relationship and use self-financing. An
optimizing agent chooses an optimal stay/exit policy for the life of the contract. The outcomes of
this model are as follows. Each period there exists a critical probability value that her partner is of
high ability. If her subjective belief is greater than that value, she remains in the contract,
otherwise she exits. In the beginning of the contract, this critical value is low, demonstrating the
optimizing agent’s willingness to remain in and learn about her partner. However, this critical
probability value increases with time, reflecting an unwillingness of the optimizing agent to remain
in the contract in the later periods since new information has little additional value. In addition,
critical probability values are affected by the terms of the contract, risk aversion, and loan return.
Namely, the iii critical probability value is an increasing function of loan size, interest rate, and
relative risk, and a decreasing function in loan return. When end rewards are explicitly accounted
for in this model, the optimizing agent’s behaviors change. In other words, reward scheme prompt
an optimizing agent to stay in the borrowing contract when she would not have done in the
absence of the scheme. A duration model is used to empirically examine the factors that affect the
borrowing relationship length. Two field surveys conducted on 260 microfinance clients from one
MFO in Bamako, Mali make up the data set. It is found that loan return, income shocks, and
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borrower’s dependency ratio decrease client exit rates. Group member repayment behaviors,
education, and excessive MFO growth increase client exit in this setting.
Porteous, D. (2006). “Competition and Microcredit Interest Rates”. CGAP Focus
Note No. 33.
Abstract: This article focuses on helping microfinance institutions, policy makers and donors assess
the stage of development of competition in a particular market and determine whether appropriate
conditions are in place to foster sustained interest rate reduction. The article then uses its initial
paradigm to analyze the condition of the MFI markets in Bolivia, Bangladesh and Uganda. The
article outlines four stages of competition through market development phases:
1. Pioneer: In this initial stage firms are few, growth is slow, and the market is concentrated
in small areas.
2. Take-off: At this point the success of the idea causes rapid take growth and expansion in
the market. Firms begin to compete in product characteristics and service. The market
remains quite fragmented although leaders begin to emerge.
3. Consolidation: The market growth slows and the numbers of firms reduce as competition
drives the market to consolidate with clear leaders emerging. Firms compete on price.
4. Mature: Steady, natural growth of the established market leaders dominates this market.
Firms compete mainly on brand and price.
The article finds that Uganda is at the end of the take-off phase and expects within the next few
years to be in the phase of consolidation. Bangladesh seems to have reached the consolidation
phase, although the market continues to grow rapidly. Bolivia is entering the maturity phase. The
article concludes with a number of policy and donor recommendations. The recommendations are
to require transparent comparable pricing structures by providers, promote consumer financial
literacy, collect and assess credible market-level information, and develop reliable consumer credit
bureaus.
Ravicz, R. M. (1998). "Searching for Sustainable Microfinance: A Review of Five
Indonesian Initiatives". World Bank Policy Working Paper No. 1878.
Abstract: Lessons about the implementation of microfinance operations from five initiatives in rural
Indonesia. Expanding the microfinance market can promote economic growth and reduce poverty
in many countries. But expanding this market is advantageous only if the increased activity is
sustainable. Ravicz draws lessons from five Indonesian microfinance initiatives in rural areas and
proposes ways for governments and donors to support the microfinance sector. Those programs
demonstrate that microfinance initiatives can provide a valuable service to low-income people at a
temporary, affordable cost to governments or donors. Incentives for customers and staff are key
features of successful microfinance operations that enable them to operate with low subsidies or
on a self-sustaining basis. Programs should also charge adequate real interest rates, aggressively
pursue repayment, and achieve a significant volume of business. To accelerate progress toward
self-sustainability, programs can track the subsidies they receive, and their supporters can impose
hard budget constraints and declining subvention support. Government-owned microfinance
initiatives are vulnerable to political pressures that undermine their commitment to sound banking
practices. Granting these institutions autonomous status, imposing hard budget constraints, and
privatizing them when they are financially sustainable, can reduce their susceptibility to political
influences. Alternatively, governments and donors could support the sector through temporary
subsidies to private sector initiatives to help them defray start-up costs. Supervision can be
improved if a country's microfinance industry, assisted by its central bank, establishes
industrywide standards. Microfinance institutions could contract for supervision services from
commercial banks. The central bank could monitor supervisors to ensure that they exercise due
diligence. This study finds that institutions can efficiently reach clients in remote areas through
subdistrict-based units and field staff. They need not rely on group lending techniques, savings
requirements, or intermediary organizations between banks and borrowers to boost efficiency.
Initiatives can serve female borrowers without targeted marketing if loan products meet women's
needs and are accessible to them. Governments could increase the usefulness of microfinance to
agriculture by encouraging state-owned microfinance institutions to develop and pilot-test loan
products that meet smallholders' need. This paper - a product of the Development Research
Department - is part of a larger effort in the group to analyze the characteristics, performance,
and poverty alleviation implications of microcredit institutions.
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Schreiner, M. (2000). “Ways Donors Can Help the Evolution of Sustainable
Microfinance Organizations”. Savings and Development, Issue no. 4.
Abstract: This paper suggests ways donors can help the evolution of sustainable microfinance
organizations. Sustainability is good because it helps microfinance organizations help more poor
people than otherwise. Sustainability is hard because it requires balancing outreach and
sustainability with prices the poor can afford yet high enough to cover the costs of the
microfinance organization. Donors are like genetic engineers whose job is to speed the evolution of
sturdy microfinance organizations. Technical assistance is the best way to strengthen microfinance
organizations.
Sharma, M. & Zeller, M. (1999). “Placement and Outreach of Group-based Credit
Organizations: The Cases of Asa, Brac, and Proshika in Bangladesh”. IFPRI,
FCND Paper No. 59.
Abstract: Bangladesh has witnessed major strides in providing financial services to the rural poor.
These services are provided largely through innovative group-based credit programs of several
nongovernmental organizations. The implicit but widespread assumption has been that they are
indeed placed in special poverty-stricken areas. Is this assumption valid? If not, what factors
actually affect programs' placement across communities? This paper uses an unique thana-level
data set to analyze the placement of three group-based credit programs in Bangladesh. Analysis of
branch placement indicates that, unlike commercial banks, nongovernmental institutions do
respond to general conditions of poverty. However, it appears that NGO services are located more
in poor pockets of relatively well-developed areas than in remoter, less-developed regions. Client
density of the established branches, however, did not exhibit such a feature and actually tended to
be better in less advantageous locations.
Shrader, L.W. (2003). “Sustainable Expansion Strategies: Case Studies of 18
Regional Leaders in Microfinance.” Research Study. Warsaw, Poland:
Microfinance Centre.
SOS FAIM. (2003). “Interest rates in the field of microfinance: a technical or
political choice?” ZOOM Microfinanzas No.9.
Abstract: How to establish appropriated interest rates has been a common discussion in the rural
finance field. This debate in many ways reflects the controversy of rural finance: how to be
sustainable and reaching the poor at the same time. The debate has been recently fed by two
perspectives. The first one states that interest rates should be fixed by market mechanisms, which
in a way allows the sustainability of the service (even though costly). The second one argues that
is still necessary to subsidize interest rates, in order to create incentives for rural development,
and having in mind the needs and real capacities of repayment of agriculture activity. The authors
argue that it would be necessary to revise some common arguments, as well: subsidy policies are
an archaism, and high rates of interest are justified in order to provide sustainable financial
services, like some experts argue. Nevertheless, it would be necessary to revise what an interest
rate means from the perspective of both clients and suppliers of financial services. From the
financial institutions’ perspective, high interest rates are justified in order to cover costs such as
money cost, failure-to-pay risks’ cost related to the loan, and loan management cost. From the
clients and rural development policy makers’ perspective, it is argued that in order to foster
macroeconomic growth, the price of money should be reduced. However, what is more important,
the price of the service or sustainable access to the service? Two approaches arise from this
debate: - to develop an interest rate policy based on institutional sustainability; or – a political
interest rate should be fixed. In order to conceal both approaches, the authors provide the
following recommendations:
•
•
•
•
•
Scale economies, technical innovations and more professionalism can reduce interest
rates.
Differentiated interest rates should be applied based on the use of the loan.
To find ways to align farmers’ logic and bankers’ logic.
In savings and loans networks, reasoning based on differentials is essential.
To favour alliances between decentralized financial services and farmers’ and producers’
organizations.
This article is recommended for financial service providers, policy makers, and managers of
cooperatives and producers’ organizations.
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Swaminathan, M. (1991). “Segmentation, Collateral Undervaluation, and the
Rate of Interest in Agrarian Credit Markets: Some Evidence from Two Villages in
South India”. Cambridge Journal of Economics 15: 161-178.
Von Pischke, J.D. (1996) “Measuring the Trade-off between Outreach and
Sustainability of Microenterprise Lenders”. Journal of International Development,
Vol. 8, No. 2, pp. 225-239, 1996.
Abstract: The research and the conference for which this paper has been prepared arise from
concerns about cooperative capital formation that have been developed since 1992. Observers in
FAO, COPAC, ILO, the World Bank and other agencies had noted that capital formation is at times
a major challenge for cooperatives, which often appear to be undercapitalized. Many cooperatives
and even entire movements may lack the financial base required for growth and sustainability: a
condition that appeared especially serious in agricultural cooperatives. Undercapitalized societies
face an additional disadvantage in surviving and prospering in an environment that includes
commercial, political and public policy risks. Liberalization of markets through structural
adjustment is changing the competitive environment in which cooperatives operate. At the same
time it was increasingly clear that donor funding for cooperative development is likely to diminish.
Cooperatives have the capacity to create infrastructure that in many cases appears unlikely to be
constructed by others, at least within a reasonable time horizon. Inattention to member capital
formation can retard or preclude such development. These converging concerns and observations
led COPAC to develop a series of open fora on cooperative capital generally and to commission
empirical research on capital formation and its relation to the overall well-being of cooperation,
which clearly requires member participation. These activities were inaugurated in the COPAC Open
Forum on "Revitalising Cooperatives in Developing and Transitional Economies: The Role of
Members' Capital" convened in Rome, 2-3 March 1993. A second COPAC Open Forum, "Revitalising
Cooperatives in Developing and Transitional Economies: The Role of Members' Capital - Review of
Progress and Future Developments," was held in Geneva on 5 October 1993. A research design
proposed at the earlier meeting had been field tested and reviewed by the Institute of Rural
Management at Anand (IRMA) in India. Its discussion led to a call for further work, which is
embodied in the three studies that form the basis for the present review at this Technical
Workshop. This paper summarizes research on cooperative capital formation in developing country
agricultural cooperatives, based on fieldwork in Guatemala, India and Kenya. This research was
commissioned by COPAC (the Committee for the Promotion and Advancement of Cooperatives)
with financial and technical support from FAO's People's Participation Service.
Women's World Banking. (2002). “Policies, Regulations and Systems that
Promote Sustainable Financial Services to the Poor and Poorest”.
Abstract: The variety of institutions operating in the microfinance industry has become increasingly
more diverse over the years. The microfinance landscape now also includes private mainstream
commercial banks, finance companies and insurance firms, and NGOs that have “transformed” into
regulated, for-profit structures, owned and governed by shareholders. This represents a movement
beyond the traditional organizations and development actors that have been involved in
microfinance. Although there have been initiatives by the leading actors in the microfinance
industry to build performance indicators and standards over the years, the increased range of
institutional types now involved calls for a comprehensive set of policies and regulations to
encourage further growth in the microfinance sector. The demonstration of strong performance,
transparency and accountability to both the financial sector and to international donors and
commercial lending agencies is a key motivation for properly regulating microfinance.
ˆ Repayment Behavior
Boakye-Dankwa, K. (1979), "A Review of the Farm Loan Repayment Problem in
Low-Income Countries". Savings and Development, Volume III, Number 4, pp.
235-252.
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Bolnick, B.R. (1988). “Evaluating loan collection performance: An Indonesian
example”. World Development, Volume 16, Issue 4, April 1988, Pages 501-510.
Abstract: This paper discusses the evaluation of loan collection performance in a specialized termcredit program introduced in Indonesia to promote the development of small-scale enterprises.
After outlining pertinent characteristics of the credit program, the available collection performance
indicators are described and appraised. It is shown that program managers and bankers had
access to quite a lot of data on collection performance, but none that provided meaningful
information for evaluating loan recovery. The paper then examines sources of the evaluation
problem, and suggest methods for developing more accurate and less ambiguous indicators of
portfolio quality, loan recovery rates, and ultimate bad debt costs.
CGAP. (2003). "Scoring: The Next Breakthrough in Microcredit?” Occasional
Paper No. 7.
Abstract: Scoring is a new way to judge the risk of whether the self-employed poor will repay their
microcredit debts as promised This paper discusses how scoring works, what microlenders can
expect from it, how to use it, and what its implications are for microcredit.
CGAP, (2005). “Due Diligence Guidelines for the Review of Microcredit Loan
Portfolios”.
Abstract: MFI portfolio reviews are critical for management, as well as regulators and the growing
number of commercial investors in microfinance. External audits, ratings, and evaluations
generally fail to accurately quantify the primary risk facing investors? Misrepresentation of
microcredit portfolio quality. This loan portfolio review tool evaluates the accuracy of reported
levels of repayment and the extent to which the MFI employs sound loan management practices. It
has three, gradually deepening, levels of review that give increasing degrees of certainty about the
quality of loan portfolios, regardless of how they are reported. It is flexible enough for different
uses and requirements for confidence in reported loan portfolio quality, and does not require
specialized audit or financial analysis skills.
Chaudhury, I. & Matin, I. (2002). “Dimensions and Dynamics of Microfinance
Membership Overlap - A Micro Study from Bangladesh”, Small Enterprise
Development, Vol. 13, issue 2, 2002, pp. 20-28.
Abstract: The microfinance market of Bangladesh is getting rapidly crowded. In certain areas there
is also quite high incidence of households taking loans from a number of microfinance providers.
Why is this happening? How does it affect the providers? What should be done? These are some of
the questions that this paper begins to address based on data collected from BRAC's operations in
Tangail. We find that a number of crises often gives rise to an urgent need for lump sums of cash,
and this is why households often need access to several loan sources. Though repayment
irregularity is found to be on the increase, somehow it is being managed from turning into a major
default problem, suggesting a level of in-built resilience of the system. This needs further
research. In terms of what should be done, we chalk a broad agenda consisting of better
information-sharing mechanisms and developing better risk-responsive financial products. In this
sense, the phenomenon of multiple microfinance membership is as much an opportunity as it is a
challenge.
Galor, Z. (2004). “Comments on Microcredit for the Poor”.
Abstract: This short paper identifies one of the problems of micro credit – that of repayment. The
author points out that many development banks and projects failed because they could not secure
repayment of credit that clients had received. He connects this to a failure of the “essential
triangle of production” which suggests that unless each side of the triangle – representing credit,
input supply and marketing – is completed, repayment will be difficult. The author points out that
traditional moneylenders can usually ensure repayment as they often provide one or even both of
the other sides of the triangle, whereas financial institutions, occupying only one side, cannot. The
paper argues that co-operatives can overcome this problem, so long as they retain the classic cooperative principles. A member-owned cooperative can provide the three elements of the triangle
in the best interests of the members. The author then focuses on savings and credit cooperatives
and argues that unless they follow correct methods of calculation on interest to be paid on
member deposits and charged on member loans, the members are not receiving the best possible
service and, in consequence, may fail. He believes member education is, therefore, crucial. Finally
this paper addresses the issue of rural development and microcredit and suggests that raising the
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productivity of farmers is insufficient to redress rural poverty. The creation of non-agricultural
employment is also important and credit is needed for non-farm enterprises.
Godquin, M. (2004). “Microfinance Repayment Performance in Bangladesh: How
to Improve the Allocation of Loans by MFIs”, World Development Volume 32,
Issue 11 , November 2004, Pages 1909-1926.
Abstract: The aim of this article is to produce a comprehensive analysis of the performance of
microfinance institutions (MFIs) in terms of repayment. We focus the analysis on the impact of
group lending, nonfinancial services and dynamic incentives on repayment performance. We test
for endogeneity of loan size and use instrumental variables to correct for it. In the second section
of the paper, we use a comparative analysis of the determinants of the repayment performance
and of loan size in order to make policy recommendations on the allocation of loans by MFIs.
Khalily, M.A.B. & Meyer, R.L. (1993). “The political economy of rural loan
recovery: Evidence from Bangladesh”. Savings and Development, Vol. 17, No.
1, pp. 23-38.
Matin, I. (1997). “Repayment Performance of Grameen Bank Borrowers: The
‘Unzipped’ State”, Savings and Development, 22(4): 451-72.
Paxton, J.A. (1996). “Determinants of Successful Group Loan Repayment: An
Application to Burkina Faso”. Dissertation, Presented in Partial Fulfillment of the
Requirements for the Degree Doctor of Philosophy in the Graduate School of The
Ohio State University.
Abstract: The success of the Grameen Bank in Bangladesh has shown that it is possible to provide
a large number of low-income people with financial services using a group lending methodology.
As a result, group-lending programs funded by international donors have proliferated at a rapid
pace throughout the world. The mechanisms of group lending, such as peer pressure and group
solidarity are touted as instruments to attain favorable repayment rates. However, repayment
rates vary dramatically from one program to another, suggesting an inherent instability in the
financial technology. Based on the work of Besley and Coate, a model for group lending repayment
has been devised. The model incorporates stabilizing and destabilizing determinants of group loan
repayment. Influences that can increase the probability of loan repayment include the effective use
of group dynamics (ex ante and ex post peer pressure and group solidarity) as well as other
factors such as appropriate training and leadership. The degree to which pressure versus solidarity
occurs is shown to be dependent on the reason given for the repayment problem and can be
formulated as an “intragroup contract” for insurance purposes. Negative externalities can diminish
the probability of successful group loan repayment. The “domino effect” occurs when one or more
members of a credit group default due to the default of other members. Another negative
influence on repayment occurs when the credit terms and conditions are no longer appropriate for
each member as credit cycles continue, creating an inherent “matching problem” as group lending
is repeated over time. In order to evaluate the prevalence of these positive and negative
externalities, a survey of 140 groups was accomplished in Burkina Faso. A mean and covariance
structural model was used to test the determinants of repayment problems arising and whether or
not the loans were recovered. This econometric method allowed for the use of latent variables with
multiple indicators, a more complex error structure, and non-metric categorical variables. The
results indicated that urban, homogenous groups with good leadership and training and prior
history of working in groups had the highest probability of repaying the loan. However, the domino
effect and matching problem were significant factors influencing loan default, creating a
destabilizing effect on overall repayment. The results of the empirical model suggest that
modifications to project design could enhance loan recovery.
Pearl, D. & Phillips, M.M. (2001). “Grameen Bank which pioneered loans for the
poor has hit a repayment snag”. Wall Street Journal, November 27.
Sharma, M. & Zeller, M. (1997). “Repayment performance in group-based credit
programs in Bangladesh: An empirical analysis”. World Development, Volume
25, Issue 10, October 1997, Pages 1731-1742.
Abstract: This paper analyzes the repayment rates of 128 credit groups belonging to three groupbased credit programs in Bangladesh: the Association for Social Advancement (ASA), the
147
Bangladesh Rural Advancement Committee (BRAC), and the Rangpur Dinajpur Rural Service
(RDRS). Using TOBIT analysis, specific tests are performed on the following hypothesized
determinants: group size, size of loans, degree of loan rationing, enterprise mix within groups,
demographic characteristics, social ties and status, and occurrence of idiosyncratic shocks. The
paper concludes that if basic principles of prudential banking are adhered to, repayment rates can
be good even in poor and remote communities. The important thing for financial institutions is to
tailor services such that it becomes worthwhile for the poor to establish a profitable long-term
association. In addition, more freedom to members in the process of group formation is
recommended.
Sobhan, R. & Ahmad, A. (1990). "Problems of Repayment to the DFls in
Bangladesh: Results of a Field Survey of Selected Enterprises" Research Report
No: 112 Bangladesh Institute of Development Studies.
Zaman, H.; Rahman, S.; Hussain, S. & Rana, M. (1995). “Profitability of BRACfinanced Projects: a study of seven microenterprises in Matlab”. Working Paper
No. 7, BRAC, Dhaka, June.
Abstract: The basic objective of this study was to look at the profit rates made by VO members
once they have made investments in projects financed through BRAC loans. BRAC’s twin objectives
of employment and income generation as part of its poverty alleviating strategy hinge crucially
upon the success of its microcredit program. Although weekly loan repayments may originate from
a variety of sources, the intended channel is via the profits made on their individual
microenterprises. This study took a sample of seventy households divided equally amongst seven
different microenterprises. The projects investigated were paddy cultivation, potato cultivation,
goat rearing, bull fattening, grocery shop, net making and poultry. The profit rates were calculated
using detailed structured questionnaires, which collected information on revenues and costs of the
project. Information on time spent on the microenterprise was also collected in order to measure
the opportunity cost of time. As for the results, we found that potato cultivation, poultry (mainly
chick rearers in our sample) and net making were the activities that made the most substantial
contribution to household income; over 1000 taka per month each. Grocery shops were the
intermediate category, the economic profit being considerably lower than the accounting one due
to the considerable amount of time the loanee spends on the activity although in terms of
accounting profit this project tops the list. Goat rearing and paddy cultivation were found, in our
limited sample, not to be significant contributors to household income making marginal amounts of
profit. Bull fattening on the other hand was found to be a loss making activity. The impact of
training was also analysed. The amount of profit made by those with relevant skill training was
compared with average profit rates for those not trained; although the former was in most cases
found to be higher this difference was not significant. However the small sample size analysed
means that one cannot make any comment on the effectiveness of BRAC’ s training programmes.
The reasons for the variations in profits were also explored. The main reason behind the difference
in the two agricultural crops was in terms of productivity; average potato output per decimal is
1.27 maunds while average paddy output is 0.48 maunds per decimal. Net making is a high value
added activity; poultry’s average profits are high but so is the risk involved due to potential illness
outbreaks. Goat rearing’s profitability is constrained by high mortality rates whereas bull fattening
return’s accrue in the long term especially since BRAC loan ceilings permit the purchase of only
young bulls. Our recommendations are for BRAC to raise loan ceilings for selected activities eg net
making, shop trading and bull fattening as it ought to raise borrower’s profit rates. BRAC should
also strive to ensure the timely delivery of inputs, particularly vaccination and marketing, as they
are essential for the success of the project. Seasonal loans, like bull fattening loans three months
before Eid, should also be encouraged. Finally we concluded that BRAC ought to pay closer
attention to the potential profit rates made on projects instead of concentrating on mass
disbursement only to meet set loan targets. After all, ultimately organizational sustainability will
depend on borrower viability.
Zeller, M. (1996). “Determinants of Repayment Performance in Credit Groups:
The Role of Program Design, Intra-Group Risk Pooling, and Social Cohesion in
Madagascar”. IFPRI FCND Paper no. 13.
Abstract: Group lending has received much attention in recent years because of its perceived
potential in providing financial services to poor households that lack traditional collateral. The
analysis in this paper focuses on the effects of program design, community and group
characteristics on the repayment performance of groups, using a data set on groups from six
different lending programs in Madagascar. The results show that socially cohesive groups pool
risks by diversifying the members’ asset portfolio so that their repayment performance is improved
even in communities with high-risk exposure.
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Informal Finance
ˆ General
Adams, D.W. & Nazarea-Sandoval, V. (1992). “Informal Finance in Semi-Rural
Areas of the Philippines,” Savings and Development 16: 159-168.
Adams, D.W. & Delbert, A.F. (1992). “Informal Finance in Low-Income
Countries”. Colorado: Westview Press, Inc.
ADB. (1985). "Some Issues for the Regional Study on Informal Credit Market",
Manila: Unpublished Preliminary Discussion Paper, Asian Development Bank,
April 19, 31 pp.
ADB. (1990), "Informal Finance in Asia". Asian Development Outlook 1990,
Manila: Asian Development Bank, pp. 187-215.
Aforka, C.I. (1990). “The Structure of the Informal Credit Market in Nigeria:
Lessons from Akwa Town of Anambra State.” Savings and Development,
Supplementary Issue: 5-13.
Agabin, M. et. al (1989). “Intergrative Report on the Informal Credit Markets in
the Philippines”. Manila: Working Paper Series no. 89-10, Philippine Institute for
Development Studies, June, 92 pp.
Aryeetey, E. (2005). “Informal Finance for Private Sector Development in SubSaharan Africa”. Journal of Microfinance, Vol. 7, No.1.
Abstract: What can be done to make informal finance and microfinance suitable for financing
growing small to medium size enterprises (SMEs) in Sub-Saharan Africa? First, I present the
characteristics of informal finance, focusing on size, structure, and scope of activities. Informal
finance has not been very attractive for the private sector. Indeed, the informal sector has
considerable experience and knowledge about dealing with small borrowers, but there are
significant limitations to what it can lend to growing microbusinesses. Second, I discuss some
recent trends in microfinance. While externally driven microfinance projects have surfaced in
Africa, their performance relative to small business finance has not been as positive as in Asia and
Latin America. Third, I introduce some possible steps toward a new reform agenda that will make
informal and microfinance relevant to private sector development, including focusing on links
among formal, semi-formal and informal finance and how these links can be developed.
Bagachwa, M.S.D. (1995). “Financial Integration and Development in SubSaharan Africa: A Study of Informal Finance in Tanzania”, Overseas
Development Institute.
Bakht, F. & Mahmood, R.A. (1998). “Overseas Remittances and Informal
Financing in Bangladesh. Studies on Informal Financial Markets in Bangladesh”.
Working Paper 5. Dhaka: Bangladesh Institute of Development Studies.
Banik, A. (2003). “Evolution of Rural Informal Financial Institutions in South
Asia”. Savings and Development, Issue no. 4, 2003.
Abstract: This paper examines the evolution of informal financial institutions in the farm sector in
South Asia. The discussion is based on relevant literature and author’s field works in the region.
The study reveals that interlinkage is one of the most important mechanisms in South Asia
through which the informal sector reduces its transaction costs and risk premia. The findings may
lead to regional specific solutions as there is no standard blueprint in this respect.
149
Baydas, M.M. et al. (1995). “Informal Finance in Egypt: Banks within Banks”.
World Development 23: pp. 651-661.
Abstract: Policy makers often assume that individuals using informal finance are forced to do so
because they lack access to formal financial services. Research in a large agricultural bank in
Egypt, however, showed that many of its employees participated in informal finance. Interviews
with villagers in a community with a branch of the bank also showed extensive involvement in
informal finance. The popularity of informal finance among people with easy access to banks
suggests that formal finance in Egypt may not be providing the types of financial services that
people demand and they therefore, create these services informally.
Bell, C. (1990). "Interactions between Institutional and Informal Credit Agencies
in Rural India". World Bank Economic Review, Volume 4, Number 3, pp. 297-327
BIDS (1986). “Informal Credit Market in Bangladesh - A Review of Literature and
a Study Outline”. Dakka: Unpublished Study Outline submitted to Asian
Development Bank, Bangladesh Institute of Development Studies, 36 pp.
Bigsten, A.; Lundvall, K. & Kimuyu, P.K. (2004). "What to Do with the Informal
Sector?” Development Policy Review, Vol. 22, No. 6, pp. 701-715.
Abstract: Kenyans of African origin manage almost all informal firms in the Kenyan manufacturing
sector. Kenyans of both African and Asian origin run formal enterprises. These three groups are
distinct in terms of experience, productivity and access to finance. Asian formal firms are the most
efficient, while there is no significant productivity difference between informal and formal African
firms. There are thus weak incentives for African informal firms to become formal. At the same
time, Kenya needs higher investments and larger exports to achieve economic take-off, and this
can only be achieved through an efficient formal sector. Therefore, policy should aim to integrate
the sectors by improving infrastructure, capacity building, credit delivery, and supporting
networks.
Bouman, F.J.A. (1990). “Informal rural finance:
information”. Sociologia Ruralis 30, no. 2: 155-73.
An
Aladdin's
lamp
of
Abstract: The one-sided emphasis on the flow of credit via formal financial channels is based, on
the one hand, on the strong belief in the superiority of the formal sector and, on the other hand,
on a series of misunderstandings of the nature, magnitude and role of the informal finance sector
and the type of actors that predominate in this field. One of the consequences of this one-sided
emphasis on credit rather than financial intermediation has been that project planning, as well as
evaluation of results, has remained limited to an analysis of the process of lending focused mainly
at the problems and peculiarities of lending institutions. Much less, if any, attention has been paid
to the behaviour and peculiarities of savers and borrowers unless in terms of formulating their
credit needs. Inherent in this is the concept of the moral and technical superiority of the formal
over the informal sector in dispensing financial services to the poor. However, a rethinking of this
conventional view was more or less forced upon aid agencies with the arrival of the oil crisis, which
brought about a new realization of the necessity of generating domestic savings within the
developing countries' own economy. The paper discusses the myth that informal finance is the
exclusive domain of the village moneylender and argues that a close study of the financial
behaviour of low-income rural households dispels such stereotypes and prejudices. An examination
of the interest rates within the informal finance market argues that, in the main, cost and risk
factors rather than monopoly positions and exploitation dictate the level of interest charged.
Bouman, F.J.A & Moll, H.A.J. (1992). “Informal Finance in Indonesia”. In
Informal Finance in Low-Income Countries, edited by Dale W Adams and D. A.
Fitchett. Boulder: Westview Press. p. 209-223.
Buchenau, J. (1997). “Financing Small Farmers in Latin America,” unpublished
paper presented at the First Annual Seminar on New Development Finance,
University of Frankfurt, September.
150
Buckley, G. (1997). “Microfinance in Africa: Is it either the problem or the
solution?” World Development, Volume 25, Issue 7, July 1997, Pages 10811093.
Abstract: This article is based on research undertaken on microenterprises in the informal sector in
Kenya, Malawi and Ghana. It seeks to provoke critical reflection on the uncritical enthusiasm that
lies behind much proselytizing of microfinance for informal sector microenterprise. It questions
whether the extensive donor interest in microenterprise finance really addresses the problems of
microentrepreneurs or whether it offers the illusion of a quick fix. It suggests that the real
problems are more profound and cannot be tackled solely by capital injections but require
fundamental structural changes of the socioeconomic conditions that define informal sector activity
and a fuller understanding of the “psyche” of informal sector entrepreneurs.
Buckley, G. (1998). “The application of sub-sector analysis: the case of informal
sector tailors in Kenya”. Small Enterprise Development, Volume 9, Number 2,
June 1998, pp. 50-56(7).
Abstract:The article illustrates the utility of subsector analysis with reference to the case of
informal sector tailors and dressmakers in Kenya. Particular attention is given to the training needs
of tailors and dressmakers, who are classified into stars and laggards, the difficulties they
experience in running their businesses and some policy implications of this methodology. It is
argued that the subsector approach avoids the tendency to see the informal sector as though it
were an undifferentiated mass of microenterprises, by focusing on the movement of a product or
service through various stages and the linkages and participants at each stage. This is likely to
lead to a detailed understanding of the opportunities and constraints incumbent on a given subsector and thereby provide a framework for appropriate policy interventions.
Carlton, A. & Hancock, D. (1998). “ISTARN - an approach to informal sector
business support in Zimbabwe”. Small Enterprise Development, Volume
9, Number 2, June 1998, pp. 41-49(9).
Abstract: There is renewed interest in ways to support small businesses using a broader range of
activities than the now traditional credit programmes. This article looks at a project which is
developing a range of integrated development services for informal sector businesses in
Zimbabwe.
Chandavarkar, A.G. (1985). "Non-Institutional Financial Sector in Developing
Countries". Savings and Development, Volume IX, Number 2, pp. 129-141.
Christensen, G. (1993). “The limits to informal financial intermediation”. World
Development, Volume 21, Issue 5, May 1993, Pages 721-731.
Abstract: The nature of informal financial intermediation has yet to be clarified, despite a growing
interest in its potential contribution to economic development. This study establishes the
preconditions which must be satisfied in order for informal financial intermediation to occur, and
examines the extent to which these preconditions are met by various informal financial agents. Full
informal financial intermediation does not take place although those financial agents able to
operate in both the formal and informal financial sectors engage in partial financial intermediation.
The relevance of these findings to the role of informal finance in economic development is then
considered.
Das-Gupta et.al (1989). “Report on Informal Credit Markets in India: Summary”.
New Delhi: National Institute of Public Finance and Policy, August, 140 pp.
Dessy, S. & Pallage, S. (1996). “Taxes, inequality and the size of the informal
sector”. Journal of Development Economics, Volume 51, Issue 1, October 1996.
Abstract: In this note, we develop a simple heterogeneous-agent model with incomplete markets
to explain the prevalence of a large, low-productivity, informal sector in developing countries. In
our model, taxes levied on formal sector agents are used to finance the provision of a productive
public infrastructure, which creates a productivity premium from formalization. Our model offers
endogenous differentiation of rich and poor countries. Complete formalization is equilibrium only in
151
countries with the appropriate initial conditions. We discuss the existence of this equilibrium and
highlight the ambiguous effect of taxes.
Donald, G. (1976). “Credit for Small Farmers in Developing Countries”. Boulder:
Westview Press.
Dorward, A., Kydd, J., Moyo, S. & Coetzee, G. (2001). “Seasonal Finance for
Staple Crop Production: Problems and Potential for Rural Livelihoods in Sub
Saharan Africa”. Wye College, Agricultural Economics, Agrarian Development
Unit.
Abstract: The paper states that agriculture is a source of poverty reduction in rural Africa, but
insufficient access to seasonal finance is a constraint to agricultural productivity and incomes of
the poor. It presents the sustainable livelihoods (SL) framework and its operational utility in a
range of situations, particularly in encouraging coherence in understanding and addressing
problems of access to seasonal financial assets by subsistence food crop producers and delivery of
financial services to subsistence food crop producers. Specifically, it examines:
•
Poverty in Africa from a livelihoods perspective;
•
The role of agriculture in rural livelihoods in sub Saharan Africa and its potential for
increasing the incomes and reducing the vulnerability of the rural poor;
•
Theoretical and empirical arguments on the linkages of agricultural growth and poverty
reduction;
•
Issues and models in seasonal crop finance in smallholder agriculture;
•
The impact of HIV/AIDS on rural livelihoods;
•
The application of the SL framework.
Drawing from South Africa, the paper identifies lessons about the application of the SL framework,
analyses the effects on policies, institutions and processes on access to financial assets and issues
to be addressed in the design and implementation of SL framework. The authors conclude that:
•
There is lack of viable institutional models for expanding seasonal finance access;
•
The high incidence of HIV/AIDS in South Africa has very severe implications for rural
livelihoods and access to and viability of financial services;
•
The diversity of rural livelihoods leads to demands for a range of different financial
services;
•
Explicit attention needs to be paid to the integration of insurance, savings, lending and
transmission in both rural livelihood strategies on the one hand and in product design and
institutional forms for service delivery on the other.
Esguerra, E.F.; Nagarajan, G. & Meyer, R.L. (1991). “Applying Contestability
Theory to Rural Informal Credit Markets: What Do We Gain?” Paper Presented at
the XXI International Conference of Agricultural Economists. Tokyo, Japan, 2229 August.
Fafchamps, M. & Lund, S. (2003). “Risk-sharing networks in rural Philippines”.
Journal of Development Economics, Volume 71, Issue 2, August 2003, Pages
261-287.
Abstract: Using original data on gifts and loans, this paper investigates how rural Filipino
households deal with income and expenditure shocks. Results indicate that gifts and informal loans
are partly motivated by consumption smoothing motives but do not serve to efficiently share risk.
Certain shocks are better insured through gifts and loans than others. Mutual insurance does not
take place at the village level; rather, households receive help primarily through networks of
friends and relatives. Network quality matters. Risk is shared through flexible, zero interest
informal loans rather than gifts. The evidence is consistent with models of quasi-credit where
enforcement constraints limit gift giving.
Fernando, N.A. (1992). “Informal Finance in Papua New Guinea: An Overview”.
in Adams D.W. and Fichett D. (Ed), Informal Finance in Low-income Countries,
Westview Press, Colorado, 1992
Ghate, P.B. (1988). "Informal Credit Markets in Asian Developing Countries".
Asian Development Review, Vol. 6, No.1, pp. 64-85.
152
Ghate, P.B. (1990). “Informal Finance: Some Findings from Asia”. Manila:
Economics and Development Resource Center, Asian Development Bank,
October, 170 pp.
Ghate, P.B. (1992). “Informal Finance. Manila”. Asian Development Bank & Oxford
University Press.
Gibson, B. (2005). “The transition to a globalized economy: Poverty, human
capital and the informal sector in a structuralist CGE model”. Journal of
Development Economics Volume 78, Issue 1, October 2005, Pages 60-94.
Abstract: Recent econometric evidence suggests that trade liberalization has an elusive
relationship to growth and income distribution. This paper provides an explanation for these
results via numerical simulations of a dynamic structuralist CGE. The conclusion is that if families
become too poor to finance human capital accumulation, or the state too stingy to supply it at a
reasonable cost, exports of skill-intensive goods can become uncompetitive and the transition to
openness may involve increasing poverty, unemployment and stagnation. The model design
incorporates an informal sector as well as accumulation of human capital. The paper simulates two
trajectories, a “green” path in which per capita income grows steadily with a rapid rate of human
capital accumulation and a reduction in the level of economic informality. A second, or “red” path
is also possible, however, with a growth rate that is much lower, an expanding informal sector and
an inadequate rate of human capital formation.
Global MicroRate Africa. (2003). “Amhara Credit & Saving Institution”. A Report
prepared for USAID and SIDA, South Africa.
Gosh, A. (1989). "Informal Sector Saving Potential". Economic and Political
Weekly, April 1, pp. 652-653.
Gupta, M.R.. (1997). “Informal sector and informal capital market in a small
open less-developed economy”. Journal of Development Economics, Volume 52,
Issue 2, April 1997, Pages 409-428.
Abstract: A three-sector static model of a small open economy has been developed with special
consideration to the urban informal sector and the informal capital market. Informal capital is
mobile between the rural sector and the urban informal sector. Policy effects in this model appear
to be different from those analysed in other three-sector models.
Hao, T.K. & Nguyen T.H. (1991). “The Organization of Tontine as an Informal
Fund Mobilization in Vietnam”. Central Institute for Economic Management;
Hanoi, 1991.
Haque, F.R. & Atiq R. (1992). “Informal Financial Sector in Bangladesh”.
Development and Change Vol 23.
Hospes, O. (1992). “Evolving Forms of Informal Finance in an Indonesian Town”.
In Informal Finance in Low-Income Countries, edited by Dale W Adams and D. A.
Fitchett. Boulder: Westview Press. p. 225-238.
Islam, R.; Von Pischke, J.D. & De Waard, J.M. (1994). "Small Firms Informally
Financed: Studies from Bangladesh", World Bank Discussion Paper No. 253,
Washington, D.C.: The World Bank, 1994, 250 pages.
Jodhka, S.S. (1995). “Who Borrows? Who Lends? Changing Structure of Informal
Credit in Rural Haryana”. Economic and Political Weekly, Sep 30th 1995, pages
A-123 to A-130.
153
Jonakin, J. & Enríquez, L.J. (1999). “The Non-Traditional Financial Sector in
Nicaragua: A Response to Rural Credit Market Exclusion”. Development Policy
Review 17 (2), 141–169.
Kabecha, W.W. & Thomas, T.H. (1995). “The quality of informal sector
manufactures in Nairobi”. Small Enterprise Development, Volume 6, Number 4,
December 1995, pp. 43-49(7).
Abstract: The products of informal sector manufacturers are commonly thought to be suitable for
consumers in developing countries on account of their low price and simplicity: they represent
'quality for the poor' rather than 'poor quality'. This article questions this assumption, and by
surveying middle-class and poor consumers in Nairobi it reveals that typical informal sector
products are regarded as of inferior quality and often more unreliable than imported or massproduced goods. Clearly there will need to be significant improvements in design and production if
informal sector products are to continue selling on domestic markets, let alone internationally.
Kashuliza, A.K. (1993). “Perception and role of informal rural finance in
developing countries: the example of Tanzania”. Journal of Rural
Studies, Volume 9, Issue 2, April 1993, Pages 163-173.
Abstract: Negative perceptions on the value of informal rural finance or credit which are prevalent
in a number of developing countries are compounded in the case of Tanzania because of the
country's Ujamaa and socialist policies. Consequently, informal rural finance has been neglected
both in terms of research and policy planning. This paper attempts to fill part of the research gap
on informal rural finance in Tanzania, and to contribute to the growing body of knowledge on this
subject in the developing countries. The paper briefly investigates the policy and perception
scenario on informal rural finance in Tanzania in the last two decades. Based on empirical data
collected through village surveys in three regions of the country, the paper describes the sources
of informal credit for smallholder farmers in those areas, and assesses the use, repayment, terms
and conditions of such credit.
Katzin, M.F. (1959). “Partners: An Informal Savings Institution in Jamaica”.
Social and Economic Studies VIII: 436-440.
Kobb, D. (1997). “Measuring informal sector incomes in Tanzania - some
constraints to cost-benefit analysis”. Small Enterprise Development, Volume
8, Number 4, December 1997, pp. 40-48(9).
Abstract: Roughly 600 informal sector entrepreneurs in Dar es Salaam, Tanzania, were surveyed
in order to compare incomes of project beneficiaries with those of a suitable control group. The
aim was to carry out a cost-benefit analysis and ultimately to gauge whether the project
intervention could be justified in terms of increased incomes. However, the act of measurement
significantly affected the results. It strongly mattered who asked the questions and how the
questions were actually worded. Furthermore, project participation should not be considered a
truly exogenous variable. In all probability it is systematically correlated with stated income and
with the degree of truthfulness in the interviewee's response. In the light of these problems, a
variation on willingness to pay is suggested as a more appropriate monitoring and evaluation
indicator.
Kui, Ng Beoy. (1985). “Some Aspects of the Informal Sector in the SEACEM
Countries”. Staff Papers no. 10, Kuala Lumpur: SEACEN Research and Training
Centre, South East Asian Central Banks, 46 pp.
Kranton, R.E. & Swamy, A.V. (1999). “The hazards of piecemeal reform: british
civil courts and the credit market in colonial India”. Journal of Development
Economics, Volume 58, Issue 1, February 1999, Pages 1-24.
Abstract: The colonial experience of developing countries provides valuable evidence regarding the
impact of legal and institutional innovations on economic growth. However, there has been little
effort by economists to study colonial policies to gain theoretical insights into the process of
institutional reform. This paper considers the introduction of civil courts in colonial India and its
impact on agricultural credit markets in the Bombay Deccan. Drawing on historical records and a
formal analysis of the credit market, the paper finds that the reform led to increased competition
154
among lenders. Ex ante, we expect that this would have raised farmers' welfare. But increased
competition also reduced lenders' incentives to subsidize farmers' investments in times of crisis,
leaving them more vulnerable in bad times.
Lamberte, M.B. & Anita, Abad-Jose. (1988). “The Manufacturing Sector and
Informal Credit Markets: The Case of Trade Credits in the Footwear Industry”.
Manila: Working Paper Series no. 88-07, Philippine Institute for Development
Studies, June, 132 pp.
Lava, A. et al. (1989). “Case Studies on the Monitoring of Informal Credit
Markets”. Manila: Working Paper Series no. 89-13, Philippine Institute for
Development Studies, June, 59 pp.
Loayza, N.V. (1994). "Labor Regulations and the Informal Economy", Policy
Research Working Paper No. 1335, Washington, D.C.: The World Bank, 48
pages.
Mansuri, G. (2006) “Credit layering in informal financial markets”. Journal of
Development Economics. (Available online 15 December 2006).
Abstract: Informal lenders with access to markets or capital often find it attractive to delegate loan
provision to downstream lenders who have an information or enforcement advantage in dealing
with particular borrowers. In this paper we examine the conditions under which such an
arrangement is preferred by two informal lenders, a landlord and a merchant, who compete in loan
provision to tenant farmers differentiated by wealth. We show that credit layering is preferred only
when tenants are sufficiently poor. In this case, the trader lends to tenant farmers via a contract
with their landlord. Otherwise, only the trader lends. As a consequence, a pattern of borrowing
emerges in which relatively wealthy tenants borrow from merchants while poor tenants borrow
mainly from their landlords. Interlinkage between land and credit thus arises only for a subset of
tenants and purely as a consequence of credit layering. This pattern is shown to be supported
empirically.
Mason, K. (1991). “Informal initiative among Zimbabwe's artisans”. Small
Enterprise Development, Volume 2, Number 4, December 1991, pp. 50-53(4).
Abstract: There is much contemporary debate among economists, planners and development
workers about the so-called 'informal sector' and its role in the national economies of developing
countries. Some observers believe this sector of the economy needs to be regulated and brought
into the formal sector; others think that its dynamism and responsiveness to demand must be
encouraged, and that its effectiveness as a generator of employment and income depends upon
maintaining its informal status. What is clear is that the informal sector cannot be ignored when
considering the social and economic development of the countries of the South. This article
describes an initiative taken by a ENDA-Zimbabwe, which seeks to identify the promise and
problems of working with informal sector artisans.
Mauri, A. (2000). "Informal Finance in Developing Economies". UNIMI Economics
Working Paper No. 9.
Abstract: The financial systems and financial markets of developing countries have a common
feature: the dualism. This means the co-existence and operation side by side of a formal or
institutional financial sector and of an informal or non-institutional financial sector. The great
diversity of informal financial activities makes difficult to evaluate the actual extent of informal
finance in each economy, but empirical evidence in a number of less developed countries suggests
that such extent is always relevant. Many examples bear witness of vitality of informal finance in
filling the gaps left by operations of formal financial intermediaries: segments of the market
neglected, credit rationing pursued through non-price allocation, exorbitant transaction costs
shifted off to borrowers. The paper provides a comprehensive study of the role of informal finance
in these economies, in rural as well as in urban areas, and of the main characters of the informal
financial markets. Credit markets where heterogeneity of lenders faces heterogeneity of
borrowers: different lenders may have different information about different borrowers. It
investigates financial markets of developing countries highlighting crucial topics such as innovation
capacity, effectiveness in personal savings mobilization, competition in funds rising and in credit
supplying, personalistic relationship, interest rates charged, transaction costs inherent to financial
intermediation, asymmetrical information, moral hazard, credit risk (arrears, delinquency, default),
155
market interlinkage. Various types of operators of the informal financial sector, both individuals
(moneylenders, pawnbrokers, indigenous bankers, traders, deposits collectors) and mutual
associations (Roscas and Ascras), are listed and analised. Finally due attention is given to
interlinks between formal and informal financial circuits: large financial flows can take place, in
fact, between formal and informal sectors. Furthermore a pronounced complementarity of the two
sectors emerges: in many instances informal finance should not be seen as a substitute of
institutional finance, as it has been often done in the past, but rather as a complement.
McMillan, J. & Woodruff, C.M. (1998). "Inter firm Relationships and Informal
Credit in Vietnam".
Abstract: A survey of private firms in Vietnam is used in this paper to examine ongoing interfirm
relationships; this survey gives detailed data on a firm's relationships with specific trading
partners. We take as our measure of a firm's trust in its trading partner the amount of trade credit
it grants. Bilateral relationships between trading partners are embedded in two kinds of networks:
one based on pre-existing ties of family or friendship, the other on communication among
manufacturers of similar types of goods. While we find that reputation is a workable basis for
contracting in Vietnam, we also find some shortcomings of the informal mechanisms. Small firms
rely more heavily than large firms on family connections and on gossip from the customer's other
trading partners. Firms dependent on trading partners run by family members grow slowly. These
observations suggest that to be successful, rather than just to survive, a firm must somehow
escape its reliance on the family-based clientelistic links. Interfirm networks remain significant
even for large firms, however, in that they use other manufacturers of similar goods as sources of
information about new suppliers, suggesting that a network of firms in the same industry, being an
open network, does not limit a firm's success in the way that a family network does. Our results
are compared to the existing trade credit literature.
Meles, F. (2000). “Informal Financial Institutions: Impact Analysis of ACCORD’s
Credit Intervention Through Iddirs in Dire Dawa”. M.Sc Thesis Addis Ababa
University.
Meyer, R.L. & Nagarajan, G. (1992). “An Assessment of the Role of Informal
Finance in the Development Process”. In Sustainable Agricultural Development:
The Role of International Cooperation, edited by G.H. Peters, and B.F. Stanton.
Brookfield: Dartmouth Press. p. 644-654.
Monteil, P.J. et al. (1993). “Informal Financial Markets in Developing Countries:
A Macroeconomic Analysis”. Oxford: Blackwell and Co.
Morduch, J. (1999): “Between the State and the Market: Can Informal Insurance
Patch the Safety Net?” The World Bank Research Observer, Volume 14, No. 2.
Abstract: Most households in low-income countries deal with economic hardships through informal
insurance arrangements between individuals and communities rather than through publicly
managed programs or market-provided insurance schemes. Households may, for example, draw
on savings, sell physical assets, rely on reciprocal gift exchanges, or diversify into alternative
income-generating activities. These mechanisms can be highly effective in the right circumstances,
but most recent studies show that informal insurance arrangements are often weak. Poor
households, in particular, have substantial difficulties coping with even local, idiosyncratic risks.
Public policy can help reduce vulnerability by encouraging private, flexible coping mechanisms
while discouraging those that are fragile or that hinder economic and social mobility. Promising
policies include creating self-regulating workfare programs and providing a supportive setting for
institutions working to improve access to credit, crop and health insurance, and safe and
convenient saving opportunities.
Morduch, J. & Sharma, M. (2001). “Strengthening Public Safety Nets: Can the
Informal Sector Show the Way?” IFPRI, FCND Paper No. 122.
Abstract: Helping to reduce vulnerability poses a new set of challenges for public policy. The most
immediate challenge is to determine the appropriate for public action – if there should be a role at
all. A starting point is the ways that communities and extended families try to cope with difficulties
in the absence of government interventions. Coping mechanisms range from the informal
exchange of transfers and loans within families and communities to more structures institutions
156
that enable an entire community to provide protection to their neediest members. This paper aims
to systemize the main trade-offs that arise when evaluating policy options.
Murshid, K.A.S. (1986). “Informal Credit Markets in the Non-Farm Rural Sector”.
Dhaka: Unpublished Draft Proposal submitted to Asian Development Bank,
Bangladesh Institute of Development Studies, 9 pp.
Mwega, F.M. (1991). “Informal entrepreneurship in an African urban area”.
Small Enterprise Development, Volume 2, Number 3, September 1991, pp. 3337(5).
Abstract: This article reports the results of a survey on the socio-economic characteristics of
enterprises and their operators in Mathare Valley, a major slum area in Nairobi. It describes their
potential to generate profits, employment and to impart skills; the inter-linkages between these
enterprises and other business areas; and the problems and constraints that they and their
operators encounter.
Nagarajan, G.; Meyer, R.L. & Hushak, L.J. (1995). “Segmentation in the
Informal Credit Markets: The Case of the Philippines”. Agricultural Economics
12(2): 171-181.
Nayar, C.P.S. (1982), "Finance Corporations: An Informal Financial Intermidiary
in India" Savings and Development, Volume VI, Number 1, pp. 5-39.
Nayar, C.P.S. (1992). “Strengths of Informal Financial Institutions: Examples
from India”. In Informal Finance in Low-Income Countries, edited by Dale W
Adams and D. A. Fitchett. Boulder: Westview Press. p. 195-208.
Oladeji, S.I. & Ogunrinola, I.O. (2001). “Determinants of Informal Savings in
South-Western Nigeria”. Savings and Development, Issue no. 2, 2001.
Abstract: The paper discusses the determinants of informal savings in Southwestern Nigeria using
the linear probability model and multiple regression technique. It utilizes cross-section data
generated from a survey conducted by the authors between October and November 1989 on the
savings habit and utilization in the informal sector. The empirical results revealed that savings
behaviour in the informal financial sector is affected by income, age, occupation, education and
region of residence. They showed that the self-employed, less educated and rural population
identified more with informal savings and had a higher informal savings ratio. The two cardinal
variables from economic theory (income and age) accounted for the bulk of the variation in the
level of informal savings. The empirical results confirm that marginal propensity to save informally
is positive, less than one; but the absolute income hypothesis that marginal propensity to save is
greater than average propensity to save in the informal financial sector is contradicted. The result
suggest that with a rising income, the average propensity to save informally declines while,
presumably, the fraction of income saved increases in the formal sector. Evidence of people
becoming more thrifty was also established, but savings of this kind was not really and could not
have been motivated by the reason of saving-up towards retirement. In the process of capital
accumulation, a conclusion of the paper is that savings policy should target the self-employed in
the informal sector. Another conclusion reached by the paper is that any policy that succeeds in
achieving increased earnings in the informal sector has a tendency of increasing the propensity to
save in the formal financial sector, even at the expense of the informal one.
Olivares, M. (1989). “A Methodology for Working with the Informal Sector”.
ACCION International/AITEC.
Abstract: This document summarizes the most significant methodological aspects of ACCION's
work with microenterprise development. It discusses issues that are significant to professionals
who work with the informal sector and suggests various approaches based on lessons drawn from
experience.
Onchan, T. (1992). “Informal Rural Finance in Thailand”. In Informal Finance in
Low-Income Countries, edited by Dale W Adams and D. A. Fitchett. Boulder:
Westview Press. p. 103-117.
157
Rahman, A. (1986). “Informal Credit Markets in Rural Bangladesh” - Study
Outline, Dakka: Unpublished Draft Proposal submitted to Asian Development
Bank, Bangladesh Institute of Development Studies, 34 pp.
Rahman, A. (1992). "The Informal Financial Sector in Bangladesh: An Appraisal
of its Role in Development". Development and Change, Vol. 23, pp.147-168.
Roth, J. (2001). “Informal microinsurance schemes - the case of funeral
insurance in South Africa”. Small Enterprise Development, Volume 12, Number
1, 1 March 2001, pp. 39-50(12).
Abstract: South Africa has an active informal insurance industry that profitably sells insurance to
low-income consumers (microinsurance). This article is based on a case study of the informal
funeral insurance industry in a rural township in South Africa. The study revealed that poor people
often cover the very considerable funeral expenses from a number of sources, including informal
credit, informal insurance, and friendly societies. The practices of informal township funeral
insurers are contrasted with those of formal insurers. The products of informal insurers were much
more popular among respondents than those of formal funeral insurers, because the products
fitted the socio-economic contours of their clients' lives. A series of lessons can be drawn from the
practices of informal insurers for the development of new microinsurance or the improvement of
existing microinsurance products.
Rouse, J. (2004). “Absorbing informal sector operators into improved urban
services”. Small Enterprise Development, Volume 15, Number 2, 10 June 2004,
pp. 11-19(9).
Abstract: Urban development for growing, modern cities may have adverse effects upon the inforal
sector. This article is based on three case studies from Bangladesh, India and Ethiopia. The first
two illustrate the challenges faced by informal sector workers resulting from developments in the
transport sector in Bangladesh, and in the energy sector in Ethiopia. In both cases, the informal
sector entrepreneurs are characterized by low incomes, vulnerability and high competition for
limited markets, and the research suggests that their vulnerability was increased by urban
development. The third case study is intended to show how the needs of informal sector workers
can be accounted for in development processes. In it, waste-recycling entrepreneurs are employed
by an organized waste collection service. The author considers what could have been done to avoid
some of the adverse impacts, and asks what is now needed to address the hardship and
vulnerability faced by displaced service providers. Recommendations are made for future projects
aimed at practitioners and policy-makers.
Rutherford, S. (1996). “A Critical Typology of Financial Services for the Poor”.
ActionAid. UK.
Abstract: This paper explores the range of indigenous systems of financial service provision for the
poor and demonstrates the diverse, ingenious and sometimes complex ways that have been
devised to enable poor people to better manage their finances. Each example includes a boxed
description of a real case and they are organised into categories, e.g.
•
•
•
Informal user owned devices - neighbours, ROSCAs and savings clubs
User owned devices - popular insurance, building societies and cooperative business
finance
Informal services for profit - deposit takers and lenders
The author also describes some NGO assisted schemes and a selection of formal services.
Altogether almost 60 financial service devices are described in this paper, mostly from Asia, and it
is an extremely revealing account. It highlights the need for practitioners to learn from financial
services that already exist before designing new interventions, and to innovate and experiment
with a wider range of services than savings and credit.
158
Rutherford, S. (1997). "Informal Financial Services in Dhaka’s Slums" in Wood,
G.D. and I. Sharif (eds.) Who Needs Credit? Poverty and Finance in Bangladesh
UPL: Dhaka and Zed Books: London.
Abstract: The spotlight of public attention has shone so fiercely on Bangladesh's credit-giving
NGOs that user-owned and other informal devices have received little attention. This paper
describes some of the wealth, variety, complexity, strengths and weaknesses of informal finance
'samities' in some Dhaka slums. Then it examines what these schemes tell us about the demand
for financial services among the urban poor, and it goes on to speculate about what NGOs might
learn from all this. The conclusion reached is that the urban poor feel a pressing need for financial
services that help them manage their cash resources-above all their capacity to save ---on a dayto-day basis. This suggests that NGOs would do well to reconsider whether they have been right to
emphasise productive loans so strongly in their programmes.
Salas, A.; Wieland, R. & Stearns, K. (1991). “Informal finance in Kingston,
Jamaica”. Small Enterprise Development, Volume 2, Number 4, December 1991,
pp. 40-46(7).
Abstract: In many developing countries new approaches are being sought by which to provide
assistance for the small business and microenterprise sectors. Improved access to financial
services and particularly credit is often an important part of this assistance. In the hope of
avoiding the myriad problems that have faced small-farmer credit and other targeted lending
programmes in the past, these newly developing programmes try to take into consideration the
needs of borrowers and lenders in a microenterprise financial system. Except for a few welldiscussed examples such as the several ACCION lending programmes in Latin America, the BKK in
Indonesia and the Grameen Bank in Bangladesh, formal financial institutions do not typically
provide services for microenterprises. Thus, in order to improve our understanding of the needs of
borrowers and lenders in these markets, it is necessary to look at informal sources of finance. This
article is the result of a study which sought to assess informal financial arrangements in Jamaica.
It summarizes interviews with both providers and users of informal finance in Kingston undertaken
in February, 1990. The objective of these interviews was to collect information regarding the terms
and conditions of financial arrangements. The questions focused on client selection, sources of
financing, costs of finance, appraisal methods, guarantees, duration of repayment, and loan
amounts.
Sandartne, N. & Senanayake, S.M.P. (1989). "The Structure of Sri Lanka's
Informal Financial Markets: Lessons of Experience" Upanathi, Volume 4,
Numbers 1 and 2, pp. 125-160.
Sanderatne, N. (1992). “Informal Finance in Sri Lanka”. In Informal Finance in
Low-Income Countries, edited by Dale W Adams and Delbert A. Fitchett
(Boulder, Colorado: Westview Press.
Sanderatne, N. “Informal Finance in Transition”. Sri Lanka Economic Journal,
Vol. 4. No. 2, pp. 31-57, December 2003.
Abstract: The perceptions of informal finance have undergone significant changes. Historically,
informal finance was characterised as highly exploitative. This paradigm has changed owing to a
better understanding of informal finance, the changes that have occurred in rural financial
markets, economic developments and changes in financial systems. The paper discusses the
evolution of rural financial markets as a transitional continuum and challenges the traditional
paradigm of informal finance. Informal sources of finance continue to be fairly significant in spite
of the increased penetration of financial institutions into rural areas and co-exist with institutional
finance. Those borrowing from institutional sources simultaneously source funds from informal
sources. Informal sources provide finance for a variety of purposes and persist due to their
advantageous characteristics of flexibility, convenience and negligible transaction costs. Informal
interest rates still range from zero to as much as 25 per cent per month. While the importance of
professional moneylenders has declined, trade credit has grown in importance and cheetus
(ROSCAS) continue to be an important financial service. While collateral is not the basis of most
informal lending, new forms of security such as post-dated cheques and blank notes signed by the
borrower have emerged. Despite over five decades of institutional agricultural credit, most credit
for small-scale agriculture is from informal sources. Although country-wide data disclosed a
significant decline in informal finance in rural areas, micro studies indicate the predominance of
informal sources.
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Schulz, M. (1995). “The informal sector and structural adjustment strengthening collective coping mechanisms in Tanzania”. Small Enterprise
Development, Volume 6, Number 1, March 1995, pp. 4-14(11).
Abstract: Structural adjustment programmes have affected Tanzania more than most countries,
and although the informal sector has grown in numbers of businesses, swelled by those who have
lost their public sector jobs, the position of most urban small traders has become more precarious
as public services crumble and frantic land-grabbing threatens their right to trade in a particular
locality. As the centralized government has withdrawn from many activities, together with the
protection it afforded the urban poor, small self-help organizations have come together
spontaneously to provide their members with the very basics of health insurance, representation
or land rights. This article describes some of these indigenous organizations, as well as the project
which is providing advice and training to meet some of their limited objectives.
Seibel, H.D. (1989). “Finance with the Poor, by the Poor, for the Poor: Financial
Technologies for the Informal Sector ─ With Case Studies from Indonesia”. Social
Strategies 3/2. Basel, Soziologisches Seminar der Universität.
Seibel, H.D. (2000). “Informal Finance: Origins, Evolutionary Trends and Donor
Options”. IFAD.
Abstract: Informal financial institutions (IFIs), among them the ubiquitous rotating savings and
credit associations, are of ancient origin. Owned and self-managed by local people, poor and nonpoor, they are self-help organizations, which mobilize their own resources, cover their costs and
finance their growth from their profits. With the expansion of the money economy, they have
spread into new areas and grown in numbers, size and diversity; but ultimately, most have
remained restricted in size, outreach and duration. Are they best left alone, or should they be
helped to upgrade their operations and integrate into the wider financial market? Under conducive
policy conditions, some IFIs have spontaneously taken the opportunity of evolving into semiformal
or formal microfinance institutions (MFIs). This has usually yielded great benefits in terms of
financial deepening, sustainability and outreach. Donors may be able to build on these indigenous
foundations and provide support for various options of institutional development, among them,
e.g. incentives-driven mainstreaming through networking; encouraging the establishment of new
IFIs in areas devoid of financial services; linking IFIs/MFIs to banks; strengthening NGOs as
promoters of good practices; and, in a non-repressive policy environment, promoting appropriate
legal forms, prudential regulation and delegated supervision. This paper is illustrated throughout
with examples drawn from the author's experience and gives a useful introduction to the concept
of Financial Services Associations (FSAs) which was pioneered by IFAD. FSAs provide a flexible
model for the delivery of low cost financial services in rural areas by establishing village level
financial structures that are initiated, owned and operated by villagers themselves. At the end of
the paper there is a useful summary of the objectives donors may pursue in order to mainstream
IFIs, together with a checklist of possible key results and outputs.
Shanmugam, Bala. (1991),"Socio-Economic Development Through Informal
Credit Market". Modern Asian Studies Volume 25, Number 2, pp. 209-225.
Sharma, M. & Zeller, M. (2000). “Informal markets: What lessons can we learn
from them?” IFPRI. Rural Financial Policies for Food Security of the Poor. Policy
Brief No. 8.
Abstract: This policy brief examines the various informal markets that the rural poor have
traditionally turned to for their financial needs. For example: Lending and Borrowing among
relatives, neighbors and friends, The rotating credit and saving associations (ROSCAs), Informal
moneylenders and Tied credit. Important lessons to be learned from the informal sector include:
Building credible long-term partnerships, Tailoring financial services to specific demand patterns,
Knowledge of local economy is important; therefore, so is decentralization of decision-making, Not
all financial contracts are self-enforcing and adequate steps must be taken to enforce contract
compliance
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Sinha, S. & Matin, I. (1998). “Informal Credit Transactions of Microcredit
Borrowers in Rural Bangladesh”, IDS Bulletin, Vol. 29, Issue. 4, pp. 66-81.
Abstract: Through a detailed study of informal credit transactions in a village in northern
Bangladesh, the research empirically establishes that increased access to credit from micro-finance
institutions (MFIs) in Bangladesh has been unable to substitute for the higher-cost informal credit
sources. The reason for this is that MFI lending technology is insensitive to variations in household
conditions. Most MFIs put all households on a treadmill of continuously increasing loan size and
insist on a fixed repayment schedule. While an easily accessible loan may seem attractive to a
cash-starved poor household, its resource profile and the wider economic and policy environment
impose limits on the marginal return to capital. Credit escalation under these circumstances
increases the likelihood of cross-financing to sustain the MFI's line of credit. Target-group
households, in particular, resort to extensive cross-financing of their loans. It is argued that crossfinancing can have a deleterious effect on the household economy in the long-run if households
continuously manage loan repayment without having the ability to repay. It is suggested that MFI
lending technology be redesigned to be sensitive to household initial conditions. Only then can
MFIs seriously compete with the informal lenders.
Srinivas, H. (1991). “Viability of Informal Credit to Finance Low-income Housing:
A Case Study of Three Squatter Settlements in Bangalore City, India”. Bangkok:
Unpublished Master's Degree Thesis Report, Division of Human Settlements
Development, Asian Institute of Technology, November, 225 pp.
Srinivas, H. (1991). “A Review of Informal Credit Market Studies: Final Report”.
Unpublished Special Study Assignment. Bangkok: Asian Institute of Technology,
March 34 p.
Stearns, K. & Otero, M. (1990). “The Critical Connection: Governments, Private
Institutions and the Informal Sector in Latin America”. ACCION International.
Abstract: This monograph summarizes the results of an international conference held in Ecuador
on the roles of the public and private sectors in microenterprise development. It reviews the
progress of government involvement in the informal sector and the participation of private
development organizations in microenterprise development. It also analyzes government and
private sector approaches to microenterprise development in six Latin American countries.
Steel, W.F. & Aryeetey, E. (1994). "Informal Savings Collectors in Ghana: Can
They Intermediate?" Finance and Development, March.
Steel, W.F.; Aryeetey, E.; Hettige, H. & Nissanke, M. (1997). “Informal financial
markets
under
liberalization
in
four
African
countries”.
World
Development, Volume 25, Issue 5, May 1997, Pages 817-830.
Abstract: This paper presents survey evidence from four countries on how informal financial
agents serve market niches that banks cannot readily reach. Their methodologies are effective in
keeping down transaction costs and default risk relative to banks, although informal agents
exercise monopoly power in dualistic markets. Liberalization of repressive financial policies has had
little effect on formal financial deepening, while informal finance has continued to grow. The paper
concludes that informal financial institutions are an important vehicle for mobilizing household
savings and financing small businesses, and it recommends that informal finance be better
integrated into financial development strategies.
Straub, S. (2005). “Informal Sector: The Credit Market Channel”. Journal of
Development Economics 78 (2): 299–321.
Abstract: We build a model of firms' choice between formality and informality. Complying with
costly registration procedures allows the firms to benefit from key public goods, enforcement of
property rights and contracts, that make the participation in the formal credit market possible. In
a moral hazard framework with credit rationing, their decision is shaped by the interaction
between the cost of entry into formality, and the relative efficiency of formal versus informal credit
mechanisms and their related institutional arrangements. The model is consistent with existing
stylized facts on the determinants of informality.
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Sundaram, K. & Pandit, V. (1984). "Informal Credit Markets, Black Money and
Monetary Policy: Some Analytical and Emperical Issues" Economic and Political
Weekly, Vol. XIX, No. 16, April 21, pp. 675-682.
Tang, Shui-Yan. (1995). “Informal credit markets and economic development in
Taiwan”. World Development, Volume 23, Issue 5, May 1995, Pages 845-855.
Abstract: Taiwan is a case which shows how informal credit markets help to compensate for the
limitations of the formal financial system, especially in satisfying the needs of medium and small
enterprises. Government regulations and policies affect the way participants in informal credit
markets solve selection, enforcement and incentive problems. Recent changes demonstrate the
continued resilience and relevance of informal credit markets during a process of financial
liberalization.
Timberg, T.A. & Aiyer, C.V. (1984). "Informal Credit Markets in India" Economic
Development and Cultural Change Vol. 33, No.1, October, pp. 43-59.
Tsai, K.S. (2004). “Imperfect Substitutes: The Local Political Economy of
Informal Finance and Microfinance in Rural China and India”. World
Development, Volume 32, Issue 9, September 2004, Pages 1487-1507.
Abstract: Banking authorities in both China and India have attempted to limit most forms of
informal finance by regulating them, banning them, and allowing certain types of microfinance
institutions. The latter policy aims to increase the availability of credit to low-income entrepreneurs
and eliminate their reliance on usurious financing. Nonetheless, the intended clients of
microfinance continue to draw on informal finance in both rural China and India. This article argues
that the persistence of informal finance may be traced to four complementary reasons––the
limited supply of formal credit, limits in state capacity to implement its policies, the political and
economic segmentation of local markets, and the institutional weaknesses of many microfinance
programs.
Unnevehr, L.J. & Zain, D. (1986). "Marketing Effency, Informal Credit and the
Role of Government Loan Programs: Cassava Trade in Indonesia" The Journal of
Developing Areas, 20, April, pp. 369-378.
Wai, U Tun. (1992). “What Have We Learned about Informal Finance in Three
Decades?” In Adams, Dale W, and Delbert A. Fitchett, “Informal Finance in LowIncome Countries”. Colorado: Westview Press, Inc
Webster, L. & Fidler, P. (1995). “The informal sector and micro-finance
institutions in West Africa”. Washington: World Bank.
Abstract: High population growth rates, shrinking public budgets, urban migration, and negative
economic growth have all increased the demand for jobs in West Africa. This increased demand
cannot be met by the formal or public enterprise sector, and the informal sector has absorbed
much of the shock of the economic contraction in the region. As a result, the informal sector in
West African countries is quite large, accounting for roughly a third to a half of GDP and a third to
three–quarters of employment. This study profiled the informal sector in 12 West African
countries, identifying the characteristics of microentrepreneurs and their enterprises, key
constraints to enterprise growth, and the types of assistance programs in place. The study also
analyzed nine microfinance institutions recognized as effective and assessed their outreach and
sustainability on the basis of recognized best practice. The 12 country studies were based primarily
on desk studies, with field visits to Burkina Faso, Cape Verde, Guinea–Bissau, Mali, and Mauritania
to verify and update information. The nine institutional appraisals were based almost entirely on
field research by Bank staff and consultants, who spent considerable time at each institution
talking with managers, visiting local branches, interviewing clients, and reviewing financial data.
The country profiles confirmed that the West African informal sector is large and growing,
particularly in urban areas, although the sectoral concentration in trade, services, and production
varies across countries. Women are important informal sector participants in all 12 countries. Key
constraints in the informal sector include saturated and stagnant markets, inadequate access to
credit and savings services, weak technical skills, inadequate information, and poor infrastructure.
Microentrepreneurs rely mainly on family, friends, moneylenders, and tontines for financial
162
services. Microenterprise assistance programs, although numerous, are unevenly distributed
throughout the region and of varying quality.
Yotopoulos, P.A. & Sagrario L.F. (1991). “Transaction Costs and Quantity
Rationing in the Informal Credit markets: Philippine Agriculture”. Markets in
Developing Countries: Parallel, Fragmented, and Black. Michael Roemer, and
Christine Jones, 141-66. California: ICS Press.
Abstract: The study of credit markets has rightfully become an integral part of the study of
economic development. Financial intermediation helps alleviate one of the two structural gaps in
the development process, the disparity between savings endowments and investment
opportunities, as well as helping meet consumption needs. The main focus of the literature on
development finance has until recently been formal financial intermediation. This chapter examines
the various mechanisms adopted by informal financial intermediaries to cope with structural
distortions in a fragments market environment, with the informal credit market in Philippine
agriculture as a case in point. Undoubtedly, both government assistance and government
regulation are required to improve the performance of financial markets, especially in developing
countries. But any rehabilitation policy package, whether it involves the formal institutions alone or
includes the informal sector as well, must take into account the crucial impact that the general
economic environment and the specific institutional infrastructure has on financial markets. For
any proposed solution to have permanent effects, is must address the lenders’ problems, including
the lack of market information and of infrastructural support services that reduces transaction
costs, and the problems faced by borrows that involve their economic viability and translate
directly into their creditworthiness.
ˆ ROSCA
Acharya, R.P.; Shrestha, P. & Shakya Jan, R. (2002). “Small Farmer
Cooperatives Ltd. (SFCLs) in the Hills and Mountains”. RUFIN/GTZ and ADBN.
Abstract: This paper describes the emergence of the Small Farmer Cooperatives Ltd. (SFCLs) in
Nepal as sustainable grassroots organizations. A Small Farmer Cooperative Ltd. is a multi-service
co-operative designed to deliver primarily financial, but also non-financial services to its members
in mountain and other remote areas. SFCLs are civil society organisations, which pool their joint
resources to meet basic needs and to defend their members’ interests. They are member-owned
and controlled and have an open membership policy towards “poor” farmers. The innovative mode
of delivery of services allows the SFCLs to run on low transaction costs. This is one of the prime
reasons why SFCLs can sustain their operations in the remote areas. Participatory management
and democratic governance is the other asset on which the success of SFCLs is building.
Acharya, R.P. & RUFIN/GTZ of Nepal. (2003). “Models of Primary Cooperative
Societies - From Single - tier to Multi-tier”. RUFIN/GTZ.
Adams, D.W. & De Sahonero, M.C. (1989). “ROSCAs in Bolivia”. Savings and
Development no 3 XIII.
Allen, H. (2006). “Village Savings and Loans Associations — sustainable and
cost-effective rural finance”. Small Enterprise Development, Volume 17, Number
1, March 2006, pp. 61-68(8).
Abstract: MFIs and banks find it difficult to cover the costs of providing rural financial services –
especially in Africa. In its large-scale Village Savings and Loans Associations (VS&LA) programmes
in Africa, CARE is tackling these difficulties by encouraging the formation of village loan funds
entirely composed of members' savings, keeping the time-bound savings and lending methodology
very simple and limiting external involvement to a one-year training and follow-up period. This
article describes how the methodology works in principle and practice and describes evaluation
results from the CARE VS&L programme in Zimbabwe, where very high rates of inflation pose a
challenge to any microfinance programmes. Finally the need for management information systems
and better record keeping are identified as issues that need further development.
163
Allen, H.; Staehle, M. (2006). “Village Savings and Loan Associations”. VSL
Associates.
Abstract: The Village Savings and Loan (VS&L) model is a savings-based approach that has proven
on a significant scale that it can substantially fill the gap between the needs of the poor for
financial services and the ability of banks and MFIs to provide these services. It provides
sustainable and profitable savings, insurance and credit services to people who live in places
where banks and MFIs do not have a presence such as rural areas and urban slums. The model
was originally developed by CARE in Maradi, Niger, in 1991 and has spread to 17 countries in
Africa, 2 in Latin America and 2 in Asia, with over 600,000 participants. A VS&LA is a self-selected
group of people, (usually unregistered) who pool their money into a fund from which members can
borrow. The money is paid back with interest, causing the fund to grow. The regular savings
contributions to the group are deposited with an end date in mind for distribution of all or part of
the total funds (including interest earnings) to the individual members, usually on the basis of a
formula that links payout to the amount saved. This lump sum distribution provides a large
amount of money that each member can then apply to his/her own needs. This training guide
describes the VS&L methodology and then provides detailed instructions on how to initiate and
provide the training that groups will need. It covers group leadership, elections, developing policies
and a constitution, record-keeping and procedures for managing meetings. The manual includes
examples of stories and games that can be used in the training process and examples of all the
forms that are required. A management and information system for field officers involved in
promoting the groups is provided in an accompanying spreadsheet.
Ambec, S. & Treich, N. (2003). "Roscas as financial agreements to cope with
social pressure”. Working Papers 200301, Grenoble Applied Economics
Laboratory (GAEL).
Abstract: In developing countries, traditional social obligations often press rich individuals to share
their income. In this paper, we posit a "model of social pressure" in which people can sign binding
financial agreements amongst themselves, thereby forming coalitions. These financial agreements
may help them to alleviate their social obligations with respect to income sharing. In the above
context, we show that there exists a stable structure of coalitions in which people form rotating
savings and credit associations (roscas). We therefore provide a rationale for one of the most
prevalent and puzzling financial institutions.
Anderson, S. and Baland, Jean-Marie, (2000). "The Economics of Roscas and
Intra-Household Resource Allocation". CentER Working Paper No. 83.
Abstract: This paper investigates individual motives to participate in rotating savings and credit
associations (roscas). Detailed evidence from roscas in a Kenyan slum (Nairobi) suggests that
most roscas are predominantly composed of women, particularly those living in a couple and
earning an independent income. To explain this phenomenon, we propose an argument based on
conflictual interactions within the household. Participation in a rosca is a strategy a wife employs
to protect her savings against claims by her husband for immediate consumption. The empirical
implications of the model are then tested using the data collected in Kenya.
Anyango, E. (2006). “Village Savings and Loan Associations: experience from
Zanzibar”. DFID Financial Sector Deepening Project Uganda.
Abstract: This paper describes Village Savings and Loan Associations (VSLA) as a time-bound
accumulating savings and credit association (ASCA). In it, 15 to 30 people save regularly and
borrow from the group fund. Loans are repaid with interest, and have a period usually between
one and three months. On a date chosen by the members, usually after about a year, all the
financial assets are divided amongst the members in proportion to each one’s savings. This payout
is called the “action audit”. The groups normally reform immediately and start a new cycle of
savings ad lending. The VSLA methodology proposes that once mature, groups can function with
no external support. Its proponents suggest that in the best programmes, 95% of the groups
continue to function after two years and that the model reaches deeper into rural areas and serves
poorer people than other microfinance models. The objective of this study was to examine the
performance of VSLA groups in Zanzibar after several years of operation independent of CARE or
other non-governmental organisations (NGOs). It also sought to understand the outreach of the
programme to poorer members of the community, and its ability to provide useful services and
produce change in the lives of users.
164
Ardener, S. (1964). “The Comparative Study of Rotating Credit Associations.”
Journal of the Royal Anthropological Institute 94(2): 201-229.
Ardener, S. & Burman, S. (eds.). “Money Go-Rounds: The Importance of
Rotating Savings and Credit Associations for Women”. Berg Publications Limited,
Oxford, 1995.
Aredo, D. (1993). “The Informal and Semi-formal Financial Sectors in Ethiopia: A
Study of Iqub, Iddir, and Saving and Credit Cooperatives”. African Economic
Research Consortium, Nairobi.
Aredo, D. (2004). “Rotating Savings and Credit Association: Characterization
with Particular Reference to the Ethiopian Iqqub”. Savings and Development,
Issue no. 2, 2004.
Abstract: Informal Savings and Credit Association (ROSCAS) have remained popular in many
developing countries for over a long period of time. In fact, in some countries, such as Ethiopia,
they have become increasingly popular among almost all sections of society. However, their
emerging features and flexibility are little understood by those interested in savings mobilization
and credit provision in developing countries. Existing economic models of ROSCAs are based on
the experience of a limited number of countries and, thus, have failed to fully explain the distinct
characteristics and dynamism of this fascinating financial intermediary. On the other hand,
interesting forms of ROSCAs, such as the Ethiopian iqqub, are little known. Using evidence from
Ethiopia and other developing countries, this paper identifies the distinct characteristics of ROSCAs
and discusses how they minimize risk arising from problems of adverse selection and of moral
hazards. The findings of the study have generated interesting policy implications for the promotion
of informal finance in developing countries.
Barton, C.G. (1977). “Rotating Credit Associations and Informal Finance: Some
Examples from South Vietnam.” Conference on Rural Finance Research, San
Diego, organized by the A.D.C. and Ohio State University.
Besley T.; Coate, S. & Loury, G. (1992). “The Economic of Rotating Savings and
Credit Associations”. ( Revised ), Princeton University, 1992
Besley, T.; Coate, S. & Loury, G. (1994). “Rotating Savings and Credit
Associations, Credit Market and Efficiency”. Review of Economic Studies, 1994,
61, 701-719.
Abstract: This paper examines the allocative performance of rotating savings and credit
associations (roscas), a financial institution which is observed world-wide. We develop a model in
which individuals save for an indivisible good and study roscas which distribute funds using
random allocation and bidding. The allocations achieved by the two types of rosca are compared
with that achieved by a credit market and with efficient allocations more generally. We find that
neither type of rosca is efficient and that individuals are better off with a credit market than a
bidding rosca. Nonetheless, a random rosca may sometimes yield a higher level of ex ante
expected utility to prospective participants than would a credit market.
Bouman, F.J.A. (1977). “Indigenous Savings and Credit Associations in the Third
World: A Message?” Savings and Development 1: 181-220.
Bouman, F.J.A. (1979), "The ROSCA: Financial Technology of an Informal
Savings and Credit Institution in Developing Economies". Savings and
Development, Volume III, Number 4, pp. 253-276.
Bouman, F.J.A. (1994). “Rosca and Ascra: Beyond the Financial Landscape” in
F.J.A. Bouman and Otto Hospes (eds.) Reconstruction of Financial Landscapes:
The Fine Art of Mapping Development, Boulder, Colorado: Westview Press.
165
Bouman, F.J.A. (1995). “Rotating and Accumulating Savings and Credit
Associations: A Development Perspective”. World Development vol 23, no 3,
1995, pages 371-384.
Abstract: Financial self-help groups in low-income countries consist of two basic types, Rotating
and Accumulating Savings and Credit Associations, or ROSCAs and ASCRAs. In the ASCRA, funds
are not immediately withdrawn but are left to grow for loan making. Comparing the two groups,
the author finds similarities and differences. Efforts to rectify the ROSCA's shortcomings have
prompted many innovations, and given birth to a hybrid preserving the best of both types, in
constant adaptation to changing environments.
Brundin, I. & Mikael S. (1992). “Savings and Credit in the Informal and
Cooperative Financial Sectors in Kenya”, Department of International Economics
and Geography, Stockholm School of Economics, minor Field Study # 31.
Callier, P. (1990). “Informal Finance, The Rotating Saving and Credit Association
- An Interpretation”. KYKLOS, 1990, Vol 43, Fasc. 2, 273-276.
Calomiris, C.W. & Rajaraman, I. (1998). “The role of ROSCAs: lumpy durables or
event insurance?” Journal of Development Economics, Volume 56, Issue 1, June
1998, Pages 207-216.
Abstract: The stylised representation of ROSCAs in recent theoretical work as a device driven by
impatience for lumpy consumer durables misses the important insurance role of this pervasive
informal financial institution in the developing world. That insurance role explains why ROSCAs
with concurrent bidding are the dominant means of determining the sequence and pricing of
allocations. In ROSCAs so structured, the recipient and the implied interest rate for each period's
allotment are determined by competitive bids at the time of distribution. We use an example of an
actual bidding ROSCA to demonstrate the extent of unpredictable needs for funds, as reflected in
the volatility of interest rates implicit in winning bids.
CGAP. (2005). “Small Farmers in Mozambique Access Credit and Markets by
Forming Associations with Assistance from CLUSA”. Agricultural Microfinance:
Case Study No 5.
Abstract: The Cooperative League of the USA (CLUSA) launched its Rural Group Enterprise
Development Program in Mozambique in the mid-1990s, when the country was still overcoming
armed conflict and settling into a market economy. The program organized 26,000 impoverished,
isolated farmers in the northern provinces into associations that could market crops to
commodities traders. These efforts led to higher farm gate prices and an 85 percent (inflationadjusted) reported increase in average annual farm revenues. The CLUSA program assisted farmer
associations to establish better relationships with the commodity traders and other agribusinesses.
This enabled smallholder association members to access input credit and short-term crop advances
from those agribusinesses, in return for the guaranteed purchase of their output. CLUSA also
brokered a partnership with a local financial provider, GAPI, to offer solidarity group loans to the
associations. As a result, associations supported by CLUSA established credit relationships that
resulted initially in US $300,000 in agribusiness company credits and nearly $100,000 in loans
from GAPI in 2003, with average repayment rates of close to 100 percent.
CGAP. (2005). “Working With Savings & Credit Cooperatives”. Donor Brief 25.
Abstract: Savings and credit cooperatives provide financial services to millions, including poor and
low-income people in many countries. Thus, donors who want to increase access to financial
services, especially savings, often support savings and credit cooperatives. Working with these
cooperatives offers many advantages, but, to be effective, donors must learn how to overcome
several unique challenges.The latest Donor Brief Working with Savings & Credit Cooperatives
provides guidance on how to address these challenges.
Elhiraika, A.B. (1999). “The Growth and Potential of Savings and Credit Cooperative Societies in Swaziland”. Development Policy Review 17 (4), 355–374.
166
Galor, Z. (2003). “Saving and Credit Cooperatives:
Approach”. The International Institute-Histadrut, Israel.
a
New
Conceptual
Abstract: In the view of the author, credit and saving cooperatives around the world are facing
serious and fundamental problems. These include basic concepts relating to the nature and aim of
the cooperatives, their structure and the principles under which they operate. Mr Galor explains his
view of the nature of credit and savings cooperatives and how they should set interest rates,
safeguard members savings, deal with surpluses and, if possible, provide marketing services to
ensure loan recoveries. After describing how he thinks a savings and credit cooperative should
work, the author continues to analyse problems that have arisen in other countries because they
do not follow fundamental principles. He highlights issues such as failure to pay proper interest on
savings, lack of incentive to reduce operating costs, misunderstanding of share capital and
surpluses, interest charges on loans being too low, etc. He gives particular attention to the
remuneration of the cooperative manager and recommends paying a percentage of the
cooperative’s revenue to provide motivation for good management, including adequate loan
recovery. Mr Galor concludes this paper by reviewing his commitment to cooperatives playing a
comprehensive role in rural development. He outlines different forms of cooperative, including
multi-purpose societies and federations and the role each can play. He believes credit and saving
cooperatives are a vital form of organization in the particularly in the developing countries of the
world.
Geertz, C. (1962), "The Rotating Credit Association: A Middle Rung in
Development", Economic Development and Cultural Change. Vol. 10, No. 3
(Apr., 1962), pp. 241-263.
Gingrich, C.D. (2004). “Community-Based Savings and Credit Cooperatives in
Nepal: A Sustainable Means for Microfinance Delivery?” Journal of Microfinance,
Vol. 6, No. 1.
Abstract: Savings and credit cooperatives (SCCs) provide a variety of microfinance services to
households in three of Nepal’s distinct regions—the Hills, Terai, and Kathmandu Valley. Nearly all
Nepali SCCs are self-funded using member savings and equity. Most Nepali SCCs are also
profitable, including those located in poor, remote areas of the Hills region. Key reasons for the
SCCs’ strong financial performance include reliance on member savings and control of
administration costs. High-profit SCCs also show superior interest earnings on loans compared to
low-profit SCCs. Nepali SCCs do not need concessionary funds, because they are already profitable
and able to mobilize member savings. While savings-led microfinance in Nepali SCCs is a slow
process, there is significant long-term outreach potential in local communities. The government
and donors should pursue institutionbuilding strategies to strengthen Nepali SCCs and should not
provide concessionary funding.
Gugerty, M.K. (2000) “You Can’t Save Alone: Testing Theories of Rotating
Savings and Credit Associations”. Mimeo, Havard University.
Handa, S. & Kirton, C. (1999). “The economics of rotating savings and credit
associations: evidence from the Jamaican ‘Partner”. Journal of Development
Economics, Volume 60, Issue 1, October 1999, Pages 173-194.
Abstract: Using a unique sample of rotating savings and credit association (Rosca) members from
Jamaica, we provide the first econometric tests of the recent theoretical advances in the literature
on Roscas, and find considerable support for an economic theory of Roscas. We find, for example,
that payments to the Rosca leader significantly enhance the sustainability of the Rosca, and that
the contractual relationship between the leader and other Rosca members is ‘transaction cost
minimizing' — when the degree of asset specificity is higher the contract is more flexible. Other
theoretical predictions we validate are the inverse relationship between size of Rosca and size of
contribution, and the use of Rosca funds for durable goods purchase.
Harper, A. (1995). “The Management of Community Credit and Savings Groups”.
Enterprise Development Centre, Cranfield University, Bedford.
167
Harper, A. (1998). “Group-based management of savings and credit - the case
of AKRSP in Pakistan”. Small Enterprise Development, Volume 9, Number 2,
June 1998, pp. 29-41(13).
Abstract: Using groups as forums through which to provide savings facilities and as channels for
delivering credit is widely accepted as a successful way of overcoming many of the problems
associated with providing microfinancial services to the poor. However, there is a danger of the
approach being adopted with too little understanding of how groups can be used, and a lack of
concern for some of the problems which may be faced. This article draws attention to the need for
a greater understanding of operations in group-based microfinance, particularly where many
management tasks are decentralized to the lowest level. It differentiates between the well-known
Grameen Bank model and an alternative model based on larger and more flexible groups, in which
a lender 'wholesales' a loan to a group, which is then left collectively responsible for on-lending
smaller loans to the individual members. The potential advantages of this model over the
'Grameen' model and the potential disadvantages are explored. The article concludes that
considerable lender support is required, and is likely to consist of training, advice services and
monitoring, balanced with a flexibility which allows groups to develop their own systems to meet
the particular needs and demands of their members.
Hospes, O. (1992). “People that count: the forgotten faces of ROSCAs in
Indonesia”. Savings and Development no 4 1992 XVII, pages 371-401.
Hoque, Hafiz Al Asad Bin & Khalily, M.A.B. (2002). “ROSCAs and ASCRAs in
Bangladesh: Implications for Financial Market Development”. Savings and
Development, Issue no. 4, 2002.
Abstract: Like many other developing countries, in Bangladesh, informal finance plays a positive
role in savings mobilization, capital formation, and investment. ROSCAs and ASCRAs are the
popular sources of informal finance in developing countries. These informal organizations continue
to flourish even in urban areas where density of formal financial and strong quasi-formal
institutions is high. This paper examines the underlying reasons for existence of ROSCAs and
ASCRAs in Dhaka, the capital of Bangladesh, through case studies and econometric analysis. The
case studies revealed that restricted production technology of formal credit market, high demand
for credit, limited types of formal loan products, high transaction cost of saving with formal banks,
need for consumption or lumpy expenditures contributed to existence of ROSCAs and ASCRAs in
the urban areas. By using member-characteristics an attempt has been made to econometrically
evaluate the determinants of memberships of ROSCAs versus ASCRAs. We found that age, marital
status, family monthly income level, occupation and education level have significant effect. Small
businessmen tend to prefer ASCRAs for continuous flow of finance, while individuals with need for
lumpy expenditures prefer ROSCAs. The findings have implications for development and
integration of financial markets in Bangladesh.
Hulme, D. & Montgomery, R. (with Bhattacharya, D.). (1994). “Mutual Finance
and the Poor: a Study of the Federation of Thrift and Credit Co-operation in Sri
Lanka (SANASA)”. Universities of Manchester and Reading, working paper 11.
Huppi, M. & Gershon F. (1990). “The Role of Groups and Credit Cooperatives in
Rural Lending”. World Bank Research Observer-IBRD - World Bank 5, no. 2:
187-204.
Abstract: The article indicates that successful group lending schemes work well with groups that
are homogeneous and jointly liable for defaults. The practice of denying credit to all group
members in case of default is the most effective and least costly way of enforcing joint liability.
Another way to encourage members to repay is to require mandatory deposits that are reimbursed
only when all borrowers repay their loans. The article points out that credit cooperatives that
mobilize savings deposits are less dependent on external sources and increase the borrowers’
incentive to repay. The success of credit cooperatives requires training of members as well as
management. Experience suggests that credit cooperative should not expand their activities
beyond financial intermediation until they develop strong institutional and managerial capabilities.
168
Johnson S.; Mule N.; Hickson R.; & Mwangi W. (2002). “The managed ASCA
model – innovation in Kenya"s microfinance industry”. Small Enterprise
Development, Volume 13, Number 2, 1 June 2002, pp. 56-66(11).
Abstract: A model of microfinance has been operating in the Central Province of Kenya since the
early 1990s largely unnoticed by donors. The model involves the mobilization of women into
accumulating savings and credit associations by local NGOs that assist in the management of the
fund in return for a management fee. The approach was developed in the early 1990s as a result
of the withdrawal of donor support to traditional women"s group activities and the local NGOs are
now entirely self-supporting. The outreach of the services is comparable to the main donorfunded
initiatives and evidence suggests that depth of outreach to poorer people may in fact be better.
This paper describes the model and explains its apparently successful performance. However, the
analysis also suggests that the model has inherent weaknesses, especially in default management,
that need to be addressed if its success is to continue.
Johnson, S.; Malkamaki, M. & Wanjau, K. (2004). “One Step Beyond: Tackling
the Frontier of Microfinance Provision in Kenya (through SACCOs)” Nairobi,
Kenya: Decentralised Financial Services (DFS), MicroSave.
Abstract: This paper examines the challenges and trade-offs for organisations seeking to provide
financial services to more remote communities. It examines the depth of outreach of a variety of
delivery models and reviews the relative sustainability, cost-effectiveness and security of each.
Kimuyu, P.K. (1999). “Rotating Saving and Credit Associations in Rural East
Africa”. World Development, Volume 27, Issue 7, July 1999, Pages 1299-1308.
Abstract: Theoretical arguments suggest that rotating savings and credit associations (ROSCAs)
improve welfare by reducing the utility cost of saving for a consumer durable. Data from two
communities in East Africa reveal major differences in the incidence of ROSCAs participation
arising, conjecturally, from differences in the relative depths of market penetration and
perceptions about the efficacy of alternative strategies for compensating for failures in the financial
markets. Participation in ROSCAs in these communities is partly driven by the need to raise school
fees, meet medical expenses and buy food. ROSCAs funds are also used to start or promote small
businesses and acquire assets, including livestock. Households owning smaller landholdings and
those enjoying higher expenditures are more likely to participate in ROSCAs. The number of
schemes in which a household participates is closely related to the main uses of ROSCAs funds
while contributions and value of receipts are determined by total expenditures and frequency of
turns respectively.
Klonner, S. (2003). "Rotating Savings and Credit Associations When Participants
are Risk Averse”. International Economic Review, Vol. 44, pp. 979-1005, August.
Abstract: We model rotating savings and credit associations (Roscas) among risk-averse
participants who experience privately observed income shocks. A random Rosca is not
advantageous, whereas a bidding Rosca is if temporal risk aversion is less pronounced than static
risk aversion. The payoff scheme of a bidding Rosca facilitates risk sharing in the presence of
information asymmetries. The risk-sharing performance of a simple arrangement where a group of
homogenous individuals runs several bidding Roscas simultaneously is as good as that of a linear
risk-sharing contract, and is more enforceable because it carries a fixed rather than a variable
contribution.
Klonner, S. (2003). "Buying Fields and Marrying Daughters: An Empirical
Analysis of Rosca Auctions in a South Indian Village". Yale University Economic
Growth Center Discussion Paper No. 854.
Abstract: A bidding rotating savings and credit association (Rosca) is modeled as a sequence of
symmetric-independent-private-value auctions with price-proportional benefits to bidders. We
estimate a structural econometric model which, by introducing an altruistic component into each
bidder's utility function, allows for socially favorable deviations from the private information, nonaltruistic bidding equilibrium. We find that bidding is more altruistic in groups managed by
experienced organizers and in Roscas whose current members have already run through more
than one Rosca cycle of the current group, implying that effective leadership and enduring
relationships help mitigate the social cost of strategic behavior. When a bidder has to meet an
unforeseen expenditure and this information is public, bidders act more altruistically than when
169
information is private and the Rosca funds are used for investment, indicating reciprocal risk
sharing among Rosca participants.
Kovsted, J. & Lyk-Jensen, P. (1999). “Rotating savings and credit associations:
the choice between random and bidding allocation of funds”. Journal of
Development Economics, Volume 60, Issue 1, October 1999, Pages 143-172.
Abstract: The performance and efficiency of random and bidding rotating savings and credit
associations (roscas) are compared within a game theoretic model. Information about individuals
return from investing the rosca pool is assumed to be asymmetric and imperfect, and rosca
members are allowed to use funds raised outside the rosca to supplement the funds raised in the
rosca. The conclusion is that although both types of roscas can improve individual welfare, the
bidding rosca is preferred to the random rosca except when credit from other sources is costly and
types of rosca members are not widely dispersed.
Kuo, Ping-Sing. (1993). “Loans, Bidding Strategies and Equilibrium in the
Discount-bid Rotating Credit Association”. Academia Economic Papers, 21:2, 261
– 303.
Kurtz, D.V. (1973). “The Rotating Credit Association: An Adaptation to Poverty.”
Human Organization 32(1): 49-58.
Levenson, A.R. & Besley, T. (1996). “The anatomy of an informal financial
market: Rosca participation in Taiwan”. Journal of Development Economics,
Volume 51, Issue 1, October 1996, Pages 45-68.
Abstract: Little is known about informal financial markets in developing countries. This paper
analyzes participation in rotating savings and credit associations using a national household survey
from Taiwan. We find that participation is highest among high-income households. There is some
evidence that income stability may play a role as well. Life cycle differences suggest a role in
funding durables purchases. Our evidence indicates that roscas may be an alternative savings
device to the formal financial sector.
Mule, N.; Johnson, S.; Hickson, R. & Mwangi, W. (2001). “The Managed ASCA
Model: Innovation in Kenya’s Microfinance Industry”. MicroSave-Africa, Kenya,
Nov.
Msewa, F.D. (1986). “How to Manage a Savings and Credit Cooperative”.
Lilongwe, Malawi: Malawi Union of Savings and Credit Co-operatives, 40 p.
MUSCCO. (1987). “Guide to Forming New Savings and Credit Co-operatives”.
Lilongwe, Malawi: Malawi Union of Savings and Credit Co-operatives, 12 p.
Olubiyo, S.O. & Hill, G.P. (2000). “The Operation of Co-operative Savings and
Credit Associations in Kwara and Kogi States, Nigeria”. Savings and
Development, Issue no. 2, 2000.
Abstract: A large proportion of economic activities in many developing economies are not serviced
by credit from formal institutional credit markets. Yet government policy and packages aimed at
broadening the base of economic development are often channeled through this formal market.
The operators of such markets are selective in their choice of enterprise to finance and in most
cases the peasants, small scale and micro enterprises are not usually favoured. Hence, a large
number of active entrepreneurs may not be able to take advantage of many government policy
measures. These entrepreneurs must use the informal credit market to finance their business
activities. However, the extent to which the informal credit market can effectively meet demand is
limited. A common complaint of the formal institutional leaders concerning the finance provided to
peasants and small-scale enterprises relates to the poor performance of the loans and their record
of repayment. In order to encourage a broader range of enterprises in different strata of the
economy, many governments have introduced credit insurance. In this way loans from the formal
institutional credit markets are insured against defaults arising from natural causes. This paper,
which is part of an on-going research project, examines the operation of one of the predominant
170
types of organised informal credit providers in Nigeria, namely Cooperative Savings and Credit
Associations. The paper identifies possible ways such providers might benefit from a credit
insurance programme implemented through the formal institutional credit market.
Owens, J. (2003). “The Partner Savings Plan of the Workers Bank, Jamaica:
Lessons in Microsavings from ROSCAs”. Chapter 9 in Promising Practices in Rural
Finance: Experiences form Latin America and the Caribbean, Mark D. Wenner et
al. (eds.), pp. 303-328.
Owoeye, T. & Adenuga, D.S. "Economic and Social Issues in Rural Informal
Savings and Credit Association; Lessons for Reform in Rural Credit Schemes in
Nigeria”. (Available online: Jun18, 2005)
Abstract: Their institutional weakness and obvious lack of formal organizational structures
notwithstanding, rural informal savings and credit associations persist and remain extremely
popular among the very poor in the society. This paper hypothesis that this is because they are
able to resolve the problems of asymmetry information, transaction costs, adverse selection, moral
hazards and other related risk, that are associated with formal financial sector. The impressive
capability of traditional savings and credit associations in coping with the above problems reveals a
strong character trait of such association. This trait shows a strong linkage between social and
economic factors, and how a better undertaking of such trait can give a deep insight into how
formal rural credit scheme can be reformed. It also shows more importantly how the large informal
sector can be brought into mainstream economic activities. Data for this paper originated from
empirical studies of traditional rural savings and credit association in Ado Local Government Area
of Ekiti State, Nigeria in 2004. This study shows that these associations appear to cope well with
the risks associated with formal financial sector by exploring social relationships, using collateral
substitutes and reducing the imbalance in information between the lender and the borrower. The
study also investigates the more than proportionate participation of women in such association and
reveal that this may be due to the fact, they are more likely to be shut-out of the formal financial
sector because of social and economic factors. The paper concludes by showing that the informal
savings and credit associations reveal more of our social and economic capability than the formal
sector. A better understanding of this may eventually help us to development a better and more
pragmatic rural credit scheme.
Rajasekhar, D. & Vyasulu, V. (1993). "Management Inputs and Credit
Cooperatives: Lessons from a Field Survey of PACs". Artha Vijnana. Volume 35,
Number 1, pp. 61-85.
Rajshekar D. (1993), “Savings and Credit Systems of the Poor As a Strategy of
Economic Development: Some NGDO Experiences”. Bangalore: Institute for
Social and Economic Change.
Rogers, C. (2006). “Financing Rural Enterprise: The Use of Rotating Credit by a
Village Community in Nepal”. Savings and Development, Issue no. 2, 2006.
Abstract: The inability to obtain sufficient capital to finance the start up or operation of a small
enterprise is often a constraining factor limiting engagement in income generating activities by
residents of less developed countries where formal sources of credit are unavailable, inadequate,
or unpopular due to rigid collateral requirements. This article describes the recent adoption of a
bidding form of rotating savings and credit association (RoSCA) by villagers from the Nyishangte
community in the Manang region of Nepal and analyzes the community’s remarkably successful
use of bidding RoSCAs to finance local business ventures. The proliferation of bidding RoSCAs in
Manang since 1999 has effectively created a local market for capital where credit can be accessed
at a price directly reflecting the local demand. By reducing the risk and raising the returns
associated with investing capital and by lowering the trouble of accessing credit, the use of bidding
RoSCAs has greatly facilitated the pooling of finance capital in Manang and made credit available
to a large portion of the community, enabling widespread involvement in entrepreneurial ventures.
Rutherford, S. (1993). “Learning to lend: Informal Savings and Credit Schemes
in Bangladesh”. SCF Working Paper No. 5, Save the Children Fund, London.
171
Rutherford, S. (1995), “Self-help savings and loan groups”. unpublished report
for ODA’s Urban Poverty Office, Delhi 1995.
Seibel, H.D. & Sherstha, B.P. (1988). "Dhikuti: The Small Businessman's
Informal Self-help Bank in Nepal". Savings and Development, Volume XII,
Number 2, pp. 183-198.
Seibel, H.D. & Schrader, H. (1999). “Dhikuti Revisited: From RoSCA to Finance
Company”. Savings and Develoment, 33/1:47-55
Shanmugam, Bala. (1989). “Development Strategy and mobilising savings
through ROSCAs: the Case of Malaysia”. Savings and Development No 4, XIII.
Simkhada, N.R. (2004). “A case study of four Savings and Credit Cooperatives
Societies (SACCOs) operating in the hill of Nepal”. Kathmandu: Paper presented
at BWTPCMF workshop at Agricultural Development Bank of Nepal, RUFIN
project funded by GTZ.
Staschen, S.J. (2001). “Financial Technology of Small Farmer Co-operatives Ltd.
(SFCLs): Products and Innovations”. Kathmandu: Agricultural Development
Bank, Rural Finance Nepal project, Working Paper No. 2.
Abstract: Recent studies on the Small Farmer Co-operatives Limited (SFCLs) in Nepal have drawn
a very positive picture of these small, member-based institutions, both in terms of impact and
viability. The Small Farmer Development Programme (SFDP) of the Agricultural Development Bank
of Nepal (ADBN) has been praised as exemplary for its successful reform of a mainly supply led
and credit-driven programme into sustainable, poverty-oriented rural financial institutions. It has
recently been placed on the same level as internationally renowned institutions such as the Bank
for Agriculture and Agricultural Co-operatives (BAAC) in Thailand and Bank Rakyat Indonesia
(BRI). Nevertheless, not much is known about how SFCLs use financial technology to achieve such
impressive results. A number of questions regarding the “how” of their success still need to be
answered:
•
How do SFCLs admit new members?
•
How do they design their savings, loan and insurance products?
•
How are savings collected and their safety secured?
•
How are loans delivered and their repayment ensured? And, most importantly,
•
How do SFCLs innovate in all these areas?
There are presently 101 SFCLs operating in Nepal. Thus, this study on the financial technology of
SFCLs does not claim to be comprehensive. Instead, a sample of six co-operatives that is
comprised of some of the most developed SFCLs from the terai region (Nepalese plains, 4 SFCLs)
as well as from the hills has been chosen.4 The study almost exclusively relies on semi-structured
interviews conducted with the Institutional Managers and, in some cases, Chairpersons of different
tiers of SFCLs (Main Committee, Inter-Group and Small Farmers Groups), and ordinary group
members. Therefore, evidence stated should be considered only as indicative, not as
representative or generally valid in all cases. Apart from the 6 SFCL-offices, one other group was
visited at its regular meeting place and one farm was inspected. Despite its limitations, the study
is in my view extensive enough to give a general picture of the financial technology and innovative
procedures SFCLs use and the products they offer. It illustrates the diversity of SFCLs, and how
imaginative some of them are. Innovative procedures and products are inserted as boxes
throughout the text.
Turtiainen, T. (1999). “Rehabilitation of Rural Finance Institutions: The Case of
Benin Savings and Credit Cooperatives and Lessons from Other Cases”. Africa
Region Findings 131 (ed.) Washington, DC: World Bank.
Abstract: Most attempts to develop financial markets and rural credit institutions in Africa have
performed poorly, not satisfying the demand for savings and credit services in the rural areas. In
many cases, however, the institutions continue to exist and could be revived, enlarged, or made
more efficient if suitable programs to help them can be worked out. This note reviews the
strategies and measures that can be used to rehabilitate rural finance institutions, based on the
successful rehabilitation program in Benin and some other cases in Africa. Rehabilitation of a
rundown rural finance institution takes several years, but it can be organized in phases, first
172
concentrating on emergency measures to save the institution from bankruptcy, and then planning
and implementing the actions for a longer-term recovery process.
Van der Brink, R. & Chavas, J.P. (1997), “The Microeconomics of an Indigenous
African Institution: the Rotating Savings and Credit Association”, Economic
Development and Cultural Change, pp.745-772.
Abstract: In light of current knowledge and the ambiguity of formal theory with respect to policy
formulation and institutional design, more analysis on the performance of informal credit markets
is needed. The objective of this article is to analyze from a microeconomic perspective a particular
variant of financial intermediation that remains popular in many parts of the world, even where
formal credit markets exist and are relatively well developed. In the Grassfields of Cameroon, it is
known as the njangeh—a type of ROSCA commonly found in the rural and urban economies of
much of sub-Saharan Africa. The organization of this article is as follows. In Section II, we present
the basic structure of the njangeh as a particular type of rotating savings and credit association. In
Section III, we develop a model in an attempt to refine the microeconomic foundations of ROSCAs.
In Section IV, we examine some empirical evidence from ROSCAs in Cameroon. The analysis
presented is based on fieldwork undertaken over a 6-month period in 1979–80 in a village in
Cameroon named Big Babanki. The discussion will focus in large part on the ROSCAs found in this
particular African village. Given the great diversity of ROSCAs around the world, it should be kept
in mind that our analysis will not reflect some of the complexities of ROSCAs found in other
locations. However, our case study should provide useful insights on the general role of ROSCAs as
an alternative credit institution. Finally, a number of policy implications are suggested.
Vogel, R.C. (2002). “Key Issues in Regulation and Supervision of Credit
Cooperatives”. Finance for the Poor, Vol.3, No.4. ADB.
Abstract: This paper addresses some key issues in developing an appropriate regulatory
environment for credit cooperatives. It begins from an underlying precept that regulatory agencies
for banks and other deposit-taking institutions will find it problematic to become involved in
regulating institutions that do not take deposits from the general public. However, it is not
necessarily simple to define what it means to take deposits from the general public, especially in
the case of credit cooperatives. Whether depositors at credit cooperatives are members of the
general public depends, among other things, on whether the credit cooperative is closed (affinitybased) or open (community-based), the ease of becoming a member, and the size of the credit
cooperative (what degree of internal surveillance can reasonably be expected). It can also include
the way that share capital is defined and whether it can be withdrawn (or borrowed against) so
easily that it effectively becomes a deposit substitute. Whether credit cooperatives take deposits
from the general public or only from a restricted membership, what could be the most appropriate
regulatory approach for those that do, and what if anything to do about those that does not, are
issues that are not unique to one particular country? In fact, these issues have become more
pressing in recent years with the increasing role of credit cooperatives in microfinance. In addition
to the Philippines, this paper focuses on credit cooperatives in four Latin American countries and
the current status of regulatory efforts in each country. The paper concludes with some
observations and recommendations with respect to the characteristics of credit cooperatives that
should be given priority when making decisions about their regulation.
Von Pischke, J.D. (1992). “ROSCAs: State of the Art Financial Intermediation”. in
Adams and Fitchett (eds) (1992) Informal Finance in Low-Income Countries.
Westview Press.
Von Pischke, J.D. (1996). “Capital Formation in Agricultural Cooperatives in
Developing Countries: Research Issues, Findings and Policy Implications for
Cooperatives and Donors”. FAO.
Abstract: The research and the conference for which this paper has been prepared arise from
concerns about cooperative capital formation that have been developed since 1992. Observers in
FAO, COPAC, ILO, the World Bank and other agencies had noted that capital formation is at times
a major challenge for cooperatives, which often appear to be undercapitalized. Many cooperatives
and even entire movements may lack the financial base required for growth and sustainability: a
condition that appeared especially serious in agricultural cooperatives. Undercapitalized societies
face an additional disadvantage in surviving and prospering in an environment that includes
commercial, political and public policy risks. Liberalization of markets through structural
adjustment is changing the competitive environment in which cooperatives operate. At the same
time it was increasingly clear that donor funding for cooperative development is likely to diminish.
173
Cooperatives have the capacity to create infrastructure that in many cases appears unlikely to be
constructed by others, at least within a reasonable time horizon. Inattention to member capital
formation can retard or preclude such development. These converging concerns and observations
led COPAC to develop a series of open fora on cooperative capital generally and to commission
empirical research on capital formation and its relation to the overall well-being of cooperation,
which clearly requires member participation. These activities were inaugurated in the COPAC Open
Forum on "Revitalising Cooperatives in Developing and Transitional Economies: The Role of
Members' Capital" convened in Rome, 2-3 March 1993. A second COPAC Open Forum, "Revitalising
Cooperatives in Developing and Transitional Economies: The Role of Members' Capital - Review of
Progress and Future Developments," was held in Geneva on 5 October 1993. A research design
proposed at the earlier meeting had been field tested and reviewed by the Institute of Rural
Management at Anand (IRMA) in India. Its discussion led to a call for further work, which is
embodied in the three studies that form the basis for the present review at this Technical
Workshop. This paper summarizes research on cooperative capital formation in developing country
agricultural cooperatives, based on fieldwork in Guatemala, India and Kenya. This research was
commissioned by COPAC (the Committee for the Promotion and Advancement of Cooperatives)
with financial and technical support from FAO's People's Participation Service.
Wehnert, U. & Shakya Jan, R. (2001). “Are Small Farmer Co-operatives Ltd.
(SFCLs) Viable Microfinance Organisations? A Comprehensive Financial Analysis
of 33 SFCLs”. Kathmandu: Agricultural Development Bank, Rural Finance Nepal
project, Working Paper No. 1.
Abstract: Small Farmer Co-operatives Ltd. are emerging in Nepal as effective tools for poverty
alleviation. However, to claim that such tools are a sustainable approach, SFCLs have to
demonstrate both, the capacity to reach the poor (outreach) and to cover their costs by internally
generated revenues (viability). In the past, many targeted credit programs in Nepal have failed
due to their supply-led character and a resulting poor repayment performance. Interestingly, the
Small Farmer Development Program was initially also a subsidized credit program. However, it
recognized the shortcomings of this approach and succeeded in adopting a major policy shift
towards an institution-building and more demand-driven approach of Small Farmer Co-operatives
Ltd. (SFCLs). Today, microfinance organizations all over the world are struggling to serve poor
clients in a sustainable manner. The case of the government-run Grameen Bank Replicators in
Nepal demonstrates the big challenges experienced in this undertaking. A first report on the
financial viability of Small Farmer Co-operatives Ltd. (SFCLs) was already produced during the
second half of 1999. Some of the key findings of this study were:
•
SFCLs show a strong trend towards reaching financial self-sufficiency;
•
the best single performers are SFCLs with a predominantly female membership;
•
the equity capital of many SFCLs is insufficient to cover their risks.
This report is a follow-up of the first financial viability study. This study intends to challenge and
respectively validate earlier findings and to follow-up on the overall development path of SFCLs
after completion of another fiscal year, i.e. 1999/2000. The number of samples discussed in this
study has increased from 20 to 33 SFCLs. The regional distribution of SFCLs in our sample is now
more even. SFCLs with predominantly female membership have also been added to our discussion,
which now brings their total number to four.
Wehnert, U. & Shakya Jan, R. (2003). “Microfinance and Armed Conflict in
Nepal: The Adverse Effects of Insurgency on Small Farmers Cooperatives Limited
(SFCLs)”. Kathmandu: Agricultural Development Bank, Rural Finance Nepal
project, Working Paper No. 3.
Abstract: The purpose of this study is to provide an update on the development of the SFCLs by
analysing the financial 2002 data of 77 SFCLs. It is thus a followup of RUFIN's Working Paper No.
1, which analysed the SFCL July 2000 data4. Now, two years later, the present study will revisit
the SFCLs by focussing on the adverse effects of the Maoist insurgency on the financial
performance of the SFCLs. The study team has also attempted to reveal some of the coping
strategies of these grassroots organisations in relation to the conflict.
Wu, D.T.H. (1974). “To Kill Three Birds with One Stone: The Rotating Credit
Associations of the Papua New Guinea Chinese”. American Ethnologist 1: 565583.
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ˆ Self-Help Group
Bansal, H. (2003). “SHG-Bank Linkage Program in India: An Overview”. Journal
of Microfinance, Vol. 5 No. 1.
Abstract: The formal financial institutions in India have ventured into microfinance in a massive
way by adopting the SHG-Bank Linkage Program model.The present paper makes an attempt to
review the performance of the program in different states of India and across three major
institutions—commercial banks, cooperatives, and the regional rural banks.The study also presents
vital information about the leading NGOs with major credit linkages in Indian states.
Bedard, G. (1988). “Savings and Credit as Instruments of Self-Reliant
Development of the Poor”. Proceedings of an International Workshop held in
Feldafing, January 25-28, 1988. Bonn: Deutsche Stiftung fur internationale
Entwicklung (DSE), 208 pp.
Chakrabarti, R. (2006). "The Indian Microfinance Experience - Accomplishments
and Challenges”.
Abstract: Microfinance is gathering momentum to become a major force in India. The self-help
group (SHG) model with bank lending to groups of (often) poor women without collateral has
become an accepted part of rural finance. The paper discusses the state of SHG-based
microfinance in India. With traditionally loss-making rural banks shifting their portfolio away from
the rural poor in the post-reform period, SHG-based microfinance, nurtured and aided by NGOs,
have become an important alternative to traditional lending in terms of reaching the poor without
incurring a fortune in operating and monitoring costs. The government and NABARD have
recognized this and have emphasized the SHG approach and working along with NGOs in its
initiatives. Over half a million SHGs have been linked to banks over the years but a handful of
states, mostly in South India, account for over three-fourth of this figure with Andhra Pradesh
being an undisputed leader. In spite of the impressive figures, microfinance in India is still
presently too small to create a massive impact in poverty alleviation, but if pursued with skill and
opportunity development of the poor, it holds the promise to alter the socioeconomic face of the
India's poor.
Harper, M. (1996). “Self-help groups - some issues from India”. Small Enterprise
Development, Volume 7, Number 2, June 1996, pp. 36-41(6).
Abstract: In India, as in other parts of the world, the banking community is discovering that it can
extend its services to the rural poor by lending to self-help groups (SHGs). By providing single,
larger loans, and relying on the group, or NGOs, to monitor the on-lending of micro-loans, the
bank's transaction charges are reduced, making the whole operation potentially profitable. This
article comments on this new phenomenon, pointing to the advantages of these methods as well
as the pitfalls that may be encountered.
Harper, M. (2002). “Grameen Bank Groups and Self-help Groups; what are the
differences?” ITDG publishing.
Abstract: Most rural micro-finance clients are organised into groups of some sort. There are many
forms of group intermediation, but the dominant models worldwide are the Grameen Bank system,
which originated in Bangladesh, and the Self-help group system, which is most widely practised in
India. Each system has its advocates, and much debate on this topic appears to focus on which of
the two is ‘the best’. This paper attempts to describe both systems, to analyse their respective
strengths and weaknesses and to suggest which may be most suitable for particular types of
clients, institutions and local environments. After reviewing where, by whom and why the two
systems used, the author assesses each method in terms of sustainability, outreach to and impact
on the poorest, empowerment and institutional feasibility. The pros and cons are usefully
summarised in a table at the end. The tentative conclusion drawn is that the Grameen system is
more expensive but may nevertheless be more suitable for poorer communities, particularly in
places where there are few NGOs to develop the groups, and few bank branches whose staff are
willing to serve them. SHGs, on the other hand, can evolve quite easily from existing ROSCAs or
other traditional financial or non-financial groups, and any bank can do business with them, so
long as its management are prepared to deal with this unfamiliar but potentially highly profitable
market segment. If there are many pre-existing groups, and if there is a wide network of bank
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branches, which need new business opportunities, the environment would seem to be ideal for the
SHG system.
Karduck, S. & Seibel, H.D. (2004). “Transaction Costs of Self-Help Groups: a
study of NABARD’s SHG Banking Programme in India”. GTZ.
Abstract: High transaction costs (TC) are one of the impediments to bank loans to the poor in lowincome countries. As earlier studies have shown (Seibel & Dave 2002), bank TC can be lowered
substantially by lending to self-help groups (SHGs) as financial intermediaries. Under the SHG
Banking Program of the National Bank for Agriculture and Rural Development (NABARD) in India,
over one million self-help groups with 16 million members (90% women), comprising some 90
million household members of the rural poor belonging to scheduled castes, were linked to 36,000
bank branches and financial cooperatives at commercial interest rates (March 2004). As the
program, which in contrast to former programs is not mandatory, continues to grow rapidly, the
question becomes all the more pertinent whether the success of financial intermediation by SHGs
is due to overall lower TC or a shifting of TC to SHGs and their members. In Karnataka State, 78
SHGs with 1160 members were selected for a pilot study. TC of SHGs were found to be low,
comprising real costs of 0.62% and opportunity costs of 0.60% of loans outstanding to members.
Real costs of members were 0.04% and opportunity costs 2.3%. It is tentatively concluded that
SHGs are an efficient intermediary for bank loans to vast numbers of the rural poor. The study
provides a methodology that can be used in more representative national and local samples.
Maurer, K. (1997). “BAAC/GTZ, Project Linking Self-Help Groups to Banking
Services, Thailand”. Eschborn: Deutsche Gesellschaft für Technische
Zusammenarbeit.
NABARD. (2003). “Banking with Self Help Groups: How and Why?” NABARD.
Microcredit Innovations Department.
Abstract: This manual has been prepared for the branch managers of banks which are moving into
the microfinance market using the self help group - bank linkage model. It has been written by the
National Bank for Agriculture and Rural Development in India and is thus particularly directed at
Indian bank managers. However, it provides an excellent description of what self help groups
(SHG) are and how they are established, which could be applicable in any environment where this
linkage model has been chosen as the means for a commercial bank to engage in microfinance.
The manual describes the role of animators in group formation and the books that an SHG must
learn to keep. Specimen pages from savings and loan account registers and a cash book are
provided in an annex. The process of linking an SHG to a bank is described in details and a clear
simple checklist is provided for a bank manager to use to determine whether an SHG is functioning
well and is, therefore, creditworthy. Example values for each criterion in the checklist are given
under the heading of very good, good and unsatisfactory. The final part of the manual explains
clearly the advantages of doing business with SHGs and the importance of maintaining close
contact with groups in order to maintain the quality of the SHG loan portfolio. Additional annexes
provide copies of the agreement that must be executed by group members to authorise certain
group members to be signatories for the bank account and a specimen application form and
articles of agreement for use by banks while financing SHGs.
NABARD. (2003). “A Handbook on Forming Self-Help Groups (SHGs)”.
Abstract: This handbook has been prepared for local animators or group promoters for helping the
poor to form self-help groups (SHGs) that can be linked to a local bank. It has been written by the
National Bank for Agriculture and Rural Development in India and is thus particularly focused on
the Indian context. However, it provides excellent advice for the creation and function of SHGs,
which can be applied in any environment where the establishment of SHGs are legally and
culturally appropriate. All self-help groups are based on the fundamental principles of “helping
each other” and “unity is strength”. You can use this handbook to develop questions to ask
potential SHG members in order to gain a sense of the feasibility of establishing a SHG in the area;
and the methods to use in promoting SHGs. The handbook will help you assist the members in
defining the division of responsibilities within their SHG. It will also help you to explain the
purposes and different types of books that an SHG must learn to keep. Example pages from
savings and loan account registers and a cash book are provided in an annex.
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Nair, A. 2005. “Sustainability of Microfinance Self Help Groups in India: Would
Federating Help?” World Bank Policy Research Working Paper No. 3516.
Abstract: This study from the World Bank, looks at Indian Self-Help Groups (SHGs), unregistered
groups of 10 to 20 members involved principally in savings and credit activities. Members save
periodically in the group and the savings are lent out to members who require loans at a fixed rate
of interest. SHGs differ from other Accumulated Savings and Credit Associations (ASCAs) in that
they are usually small, promoted among the poor by external agencies, and can obtain loans from
banks. 90 percent of these groups in India are composed of only women members. This study
looks at the success of SHGs in India, and considers the challenges they face, focusing particularly
on the idea of federating groups to make larger units capable of providing more services to
members. It is a useful theoretical study which will be of interest to policy-makers. It should be
borne in mind that the three federations looked at in this study are not representative of all
federations, but are best cases. The overall objective is to explore the potential of SHG federations
in making SHGs financially and organisationally sustainable, and to recommend strategies to
strengthen them. From 1995 to 2005, more than 700,000 SHGs obtained approximately 20 billion
rupees in loans from banks under a program of the National Bank of Agriculture and Rural
Development (NABARD). In cumulative terms this means that perhaps over 10 million people have
benefited from such loans. The on-time repayment rate has been over 95 percent, and a
conservative estimate sets savings in SHGs at at least Rs.8 billion. Despite this success story, the
sustainability of SHGs is not clear. The small size of such groups means they tend to be dependent
on the promoter agencies for several essential services, and in response to this weakness, SHG
federations came into being, to take over those services. Such services, provided by federations
(including financial services, but also publicity and literacy training of staff), help the SHGs gain
economies of scale, obtain value-added services, reduce transaction costs and enhance
empowerment, thus contributing to the overall sustainability of the SHGs. Thus the federations
may serve to assist SHGs on the way to independence from promoter agencies. The author
argues, using examples of SHG federations, that financial sustainability for such federations is
easier to achieve than is organisational sustainability, i.e. effective governance, staffing, and
information systems. A system of mutual accountability between member SHGs and their
federations is suggested as a solution. The paper is open about its limitations and about its profederation argument, and suggests further reading.
Puhazhendhi, V. (1995). “Transaction Costs of Lending to Rural Poor: NGOs and
SHGs of the Poor as Intermediaries for Banks in India”. Working paper.
Brisbane: Foundation for Development Cooperation.
Satish, P. (2001). “Institutional Alternatives for the Promotion of Microfinance:
Self-Help Groups in India.” Journal of Microfinance, Vol. 3, No.2.
Abstract: Microfinance is now an accepted institutional framework for taking financial services to
the poor. It is but natural that microfinance should have had tremendous growth in India - the
home to the largest concentration of poor. In India the microfinance technology that had a
relatively higher growth in the last decade is the self-help group (SHG). This lays stress on thrift as
well as credit and also on the linkage between informal groups and formal financial institutions. An
important sine qua non in this technology is the institution that promotes the SHGs. In India, SHGs
have been promoted by nongovernmental organizations (NGOs), banks and the government. This
paper attempts to compare the role of these three institutional variants in promoting the SHGs,
their strengths and weaknesses, and the best practices that could be copied from them.
Seibel, H.D. & Khadka, S. (2002). “SHG Banking: A Financial Technology for
Very Poor Microentrepreneurs”. Savings and Development, Issue no. 2, 2002.
Abstract: Reaching 100 million of India's rural poor with savings and credit by 2008 - this is
NABARD's goal through its SHG banking program, leveraging the strength of the formal banking
system and the flexibility of informal self-help groups (SHGs) in providing adequate financial
services to very poor rural microentrepereneurs. Through NGOs, government agencies and banks,
vast numbers of self-help groups have been established in recent years: as self-reliant
autonomous local financial intermediaries. 85% of the members are women; in India, they have
proven to be the better savers, borrowers and investors. Most of them are from the lowest castes
and other disadvantaged groups. The SHGs mobilize their own savings, transform them into loans
to members and plow their earnings from interest income back into equity. On that basis, SHGs
and banks enter into commercial relations of mutual benefit, with low bank and client transaction
costs and low risks. In the absence of interest rate restrictions and with repayment rates >99%,
SHG banking is highly profitable - a message that has convinced hesitant bank managers in
increasing numbers. SHGs are now forming local networks with their own cooperative financial
177
institutions. The program has turned into a social movement, with high expansion rates in recent
years. Fuelled by competence and enthusiasm at all stakeholder levels, it expands rapidly
throughout India, including marginal and tribal areas. It is probably the world's largest and most
successful microfinance program for the rural poor - outstanding in its emphasis on self-reliance
and local autonomy. NABARD is now facing the combined challenges of how to disseminate the
approach throughout India and the region; and how to continue financing the incremental costs of
technical and financial assistance to the participating agencies. This calls for a coordinated donor
effort: with the objective of strengthening and mainstreaming the program in India and
disseminating it throughout the Asia region.
Seibel, H.D. & Karduck, S. (2004). “Transaction Costs of Self-Help Groups in
NABARD’s SHG Banking Programme: A Study in Karnataka State”. Mumbai:
NABARD, June.
Sharma, M. (2004). “Community-Driven Development and Scaling Up of
Microfinance Services: Case Studies from Nepal and India”. IFPRI FCND Paper
No. 178.
Abstract: This case study examines the scaling-up experiences of two microfinance institutions:
the Nirdhan Utthan Bank Limited (NUBL) in Nepal and the Self-Help Group (SHG)-Bank linkage
program of the National Agricultural Bank for Agriculture and Rural Development (NABARD) in
India. Both NUBL and NABARD groups use self-regulation (peer selection, peer monitoring, and
peer enforcement of contracts) as key to gaining access to services not otherwise available to
them. There are two community-based drivers. First, loan products are closely driven by client
preferences, as evidenced by strong demand to join the program, high repayment rates, and very
low dropout rates. Second, the process of organizing clients into groups has a significant
empowering effect, providing voice.and attendant bargaining power.to an impoverished class.
Standardization of rules of conduct and basic service delivery mechanisms (and, in the case of
NUBL, standardization of financial products themselves) was key to swift replication in both India
and Nepal. In Nepal, where the density of commercial banking services was low, NUBL chose to
provide financial services itself. In India, where the density was already very high, NABARD
recognized the core advantages of group-based finance but adopted the .linkage. model that
linked groups of poor women to preexisting commercial banks. The NABARD experience is
government-led. NUBL, on the other hand, was established as an alternative to government
action. In both cases, government policy in the form of mandatory .priority sector. credit
played.and continues to play.a critical role in facilitating expansion. The subsidy content (explicit
and implicit) of both NUBL and the NABARD program is quite high, and continued expansion of
both programs is highly conditional on whether the policy regime of directed credit continues. Any
change in this policy will deal a severe blow to both of these institutions. Provisioning group-based
credit is costly, because it is highly staff time-intensive. In the case of NUBL, staffing requirements
are so high that it has not been possible to scale-up services in more remote and sparsely
populated mountainous areas of Nepal. In India, expansion of services in the more remote
northeastern states has been hindered by the high cost of setting up and operating SHGpromoting institutions. One option in both countries is to induce the development of group
federations that become self-financing and -regulating. Instances of well-functioning group
federations are emerging in parts of India, and federations may well be the key to consolidating
gains made so far in ensuring that the programs are primarily driven by the interests of clients and
making the transition to an eventual end of subsidies. Finally, quality of the broader national
environment is very important in facilitating growth of institutions. NUBL.s growth leveled off just
as expansion of SHGs accelerated in India. This was not a coincidence. The Maoist insurgency in
Nepal severely restricted development of the microfinance sector, while the supporting
environment in India facilitated its own unparalleled expansion.
Srinivasan, R. (2003). “Self-Help Groups as Financial Institutions”. Journal of
Microfinance, Vol. 5, No. 1, Spring 2003.
Abstract: This paper uses a spreadsheet financial model to identify key financial policy parameters
that influence the performance of self-help groups (SHGs)whose primary activity is
microfinance.The focus is on long-run (ten-year)performance.There is bad news for those policy
makers and practitioners who focus unduly on growth as measured by loan activity.A conservative
financial policy that does not inject external funds into the SHG in the initial years and,when it
does, does so with moderation,seems appropriate in the long run.Additionally, a high loan interest
rate policy produces SHGs that are strong financial institutions.
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Srivastava, P. (2004). “Scaling-up Access to Finance for India’s Rural Poor”.
World Bank.
Abstract: This paper discusses ways to improve the financial scenario in rural India, and concludes
that the “SHG (Self Help Group)- Bank Linkage”, with certain improvements in infrastructure, is
the best way.
The author argues that:
•
The poor in India have very little access to formal finance;
•
There is a strong need for innovative approaches to serve the financial needs of the rural
poor.
The author states that:
•
In the last decade, the “SHG - Bank Linkage” approach has effectively targeted the rural
poor and has helped reduce vulnerability of its clients;
•
Other institutional structures that have emerged for microfinance have not been able to
meet the desired goals.
As per the paper, the success of the SHG - Bank Linkage model is because it:
•
Is well aligned with Indian history and circumstances;
•
Capitalizes on the country’s vast network of rural branches;
•
Has good policy, skillful and committed leadership;
•
Has an enabling legal and regulatory framework; no governmental interference;
•
Emphasizes on quality.
The author concludes that:
•
While microfinance can be a quick way to deliver finance, the strategy should be to
“graduate” microfinance clients to formal finance institutions, where they can access
standard “individual” loans, possibly on a fully commercial basis.
•
Strong efforts should be made to reform the rural finance markets and institutions to
improve the efficiency of the sector, and to design services and products appropriate for
small clients.
Tankha, A. (2002). “Self-Help Groups as Financial Intermediaries in India: Cost
of Promotion, Sustainability, and Impact”. New Delhi: Sa-Dhan, study prepared
for ICCO and Cordaid, The Netherlands, August.
Abstract: This study, which has been undertaken for Sa-Dhan, New Delhi on behalf of ICCO and
Cordaid, supplements studies undertaken by I/C Consult on the self-help group (SHG) landscape in
India (Bosch, 2001; & Bosch and Damen, 2000). It analyses the role and development of SHGs in
financial intermediation in rural India. The principal objective of the study is to contribute to a
consistent and relevant funding policy for ICCO and Cordaid. It seeks to achieve an understanding
of “best practice” in SHG development in India and to help direct donor funds for microfinance
(MF). The study addresses three main issues: Efficiency: What can be said about the average cost
of SHG promotion both with and without emphasis on social and political empowerment? What
difference does the credit plus approach make to average SHG promotion costs? Effectiveness:
What is known through results of assessment studies of the effects and impact of SHG promotion?
What is known about the results of monitoring indicators of impact? Sustainability: What kind of
sustainability or phase out strategy is employed by NGOs? The study is based on a review of
literature on SHGs, the experiences of seven leading NGOs involved in the formation of SHGs and
interviews with chief executives and staff of a dozen other major NGOs/ projects promoting SHGs.
Wilson, K. (2002). “The New Microfinance: An Essay on the Self-Help Group
Movement in India”. Journal of Microfinance, Vol. 4, No. 2, Fall.
Abstract: Indian NGOs have created at least one million self-help groups with 17,000,000
members since the self-help group concept was developed by MYRADA in the late 1980s. India is
unique in that banks are permitted to lend directly to unregistered self-help groups and by May
2001, banks and cooperatives had financed 461,478 of these groups, with almost 200,000 new
self-help groups financed between May 2000 and May 2001, indicating an accelerated process of
expansion. The National Bank for Agriculture and Rural Development (NABARD) trains banks and
refinances their loans. The key to NABARD's success is decentralization. Responsibility for group
development and training is devolved to NABARD's 2,100 NGO partners and almost 450 banks and
cooperatives provide banking services to the groups. According to the Microcredit Summit Report,
2,663,901 of the 6,651,701 active members of the groups financed through NABARD (most of
them women) were categorized as "the poorest," making NABARD the largest microfinance
initiative in Asia, with Grameen Bank a close second. (If the number of members of self-help
groups not linked to bank financing are included, the number of the poorest being reached through
self-help groups is at least double.) Local costs per group member to train and support a group
until it can operate independently range between $4 and $12.
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Wilson, K. (2002). “The Role of Self-Help Group Bank Linkage Programme in
Preventing Rural Emergencies in India”. Mumbai, India: NABARD MicroCredit
Innovations Department.
Abstract: Throughout India floods, cyclones, droughts, earthquakes, and landslides threaten the
survival of rural households, dealing their harshest blows to the most vulnerable communities. In
the face of such natural calamities, very poor families lose their health, their homes, their animals,
their water, their land, and their chance for education. Most of all, they lose their hope. Catholic
Relief Services seeks to reverse these losses through the Self-Help Emergency Prevention
(SHEPherd) program, an approach which sequentially engages two proven models: the ‘self-help
group’ model-particularly the self-help bank linkage model advanced by NABARD, and the
‘community-based disaster preparedness’ model. CRS has already secured $600,000 to begin this
program in Eastern India effective October 2002.
ˆ Informal Lending
Adams, D.W. & Ladman, J. (1979), "Lending to Rural Poor through Informal
Groups: A Promising Financial Market Innovation?" Savings and Development,
Volume III, Number 2, pp. 85-94.
Aleem, I. (1993). “Imperfect Information, Screening, and the Costs of Informal
Lending: A Study of a Rural Credit Market in Pakistan”. In The Economics of
Rural Organization: Theory, Practice and Policy, edited by Karla Hoff, Avishay
Braverman, and Joseph E. Stiglitz. New York: Oxford University Press. p. 131153.
Abstract: Many governments have perceived the rural moneylender as usurious. This article takes
a first step toward directly testing the validity of this view. In a study of services, costs, and
charges of fourteen informal market moneylenders and their clients in Chambor, Pakistan, the
article examines whether the high implicit interest rates charged reflect the actual costs of
operating in that market. Estimates of the resource costs incurred by informal lenders for
screening, pursuing delinquent loans, overhead, and cost of capital ( including unrecoverable
loans) suggest that lenders' charges are equal to their average cost of lending but exceed their
marginal cost. This finding is consistent with the view that the informal credit market is
characterized by excess capacity and monopolistic competition in the pressure of imperfect
information.
Ashraf, N.; Karlan, D.S. & Yin, W. (2005). "Deposit Collectors". Yale University
Economic Growth Center Discussion Paper No. 930.
Abstract: Informal lending and savings institutions exist around the world, and often include
regular door-to-door deposit collection of cash. Some banks have adopted similar services in order
to expand access to banking services in areas that lack physical branches. Using a randomized
control trial, we investigate determinants of participation in a deposit collection service and
evaluate the impact of offering the service for micro-savers of a rural bank in the Philippines. Of
137 individuals offered the service in the treatment group, 38 agreed to sign-up, and 20 regularly
used the service. Take-up is predicted by distance to the bank (a measure of transaction costs of
depositing without the service) as well as being married (a suggestion that household bargaining
issues are important). Those offered the service saved 188 pesos more (which equates to about a
25% increase in savings stock) and were slightly less likely to borrow from the bank.
Bolnick, B.R. (1992). “Moneylenders and informal financial markets in Malawi”.
World Development, Volume 20, Issue 1, January 1992, Pages 57-68.
Abstract: After a background review of the institutional financial srvices available to small and
medium enterprises in Malawi, and a survey of the literature on Malawi's informal financial markets
(IFMs), this paper presents a detailed report on the character and operations of a katapila
moneylender in Lilongwe, Malai. The moneylender market is then analyzed in terms of several
themes from the literature on IFMs in less developed countries. For example, calculations show
180
that the interest charges on katapila loans are not justified by economic costs of doing business.
Finally, policy implications for promoting more efficient finance are discussed.
CGAP. (2005). “Caja Los Andes (Bolivia) Diversifies into Rural Lending”.
Agricultural Microfinance: Case Study No 3.
Abstract: Caja Los Andes (CLA) has distinguished itself as a profitable, diversified provider of
individual loans in the highly competitive Bolivian microfinance market. (Caja Los Andes, F.F.P.,
became Banco Los Andes Procredit in January 2005.) After inheriting a three-year-old urban
lending portfolio from its parent organization (Procredito) in 1995, CLA immediately began to
expand its operations to rural areas and add agricultural loans to its portfolio. Despite a difficult
recession that began in 1999, CLA has performed well and continues to hold close to 10 percent of
its total portfolio in rural and agricultural loans. This case study examines the adaptation of CLA's
urban lending methodology for rural and agricultural loans, its risk management techniques for
agricultural finance, and the impact of socio-political constraints in Bolivia that limit portfolio
growth.
Coleman, B.B. (1999). “The Impact of Group Lending in Northeast Thailand”.
Journal of Development Economics 60 (1): 105-141.
Abstract: Much of the literature on group lending focuses on its high repayment rates rather than
its goal of promoting borrower welfare. Most studies that attempt to measure the impact of group
lending neglect the issues of self-selection and endogenous program placement, thus leading to
biased estimates of impact. One reason for this neglect is the lack of data that would allow for
identification of impact. This paper surmounts these problems by using data from a quasiexperiment conducted in Northeast Thailand in 1995–1996. Program participants were identified in
six control villages 1 year prior to receiving loans. Surveys were then conducted of these “control”
members, “treatment” members in eight older program villages, and nonmembers in both types of
village. This survey design allows for straightforward estimation of impact. The results indicate
that program loans are having little impact although “naive” estimates of impact that fail to
account for self-selection and endogenous program placement significantly overestimate impact.
Cuevas, C.E., & Graham, D.H. (1984). “Agricultural Lending Costs in Honduras”.
In Undermining Rural Development with Cheap Credit, edited by Dale W Adams,
Douglas H. Graham, and J.D. Von Pischke. Boulder: Westview Press. p. 96-103.
Dalla Pellegrina, L. & Masciandaro, D. (2003). "New Microfinance? Informal
Credit and Group Lending in Competitive Markets". Universita di Lecce
Economics Working Paper No. 39/20.
Abstract: In this paper we present a model of competition between informal lending and group
lending. The paper is organized as follows. The second paragraph reviews the economic literature
that analyzes separately group contracts and informal lending markets. The third paragraph tries
to answer the following question: "Can the credit group play a role in competitive markets?",
where competitive markets are characterized by two features: markets where the lender acts
under no profit condition, and at the same time the borrower can choose among different types of
contracts (i.e., informal lending contracts and credit group contracts). The fourth paragraph
concludes.
Dalla Pellegrina, L. (2006). "Microfinance and Investment: A Comparison
Between Group Lending, Bank Lending and Informal Credit". Working Paper
Series Bocconi University.
Abstract: Using data from a World Bank survey carried out in Bangladesh during the period 19911992, we compare the impact of microfinance/group lending and other types of credit on
agricultural investment. After controlling for all other determinants of credit contracts, such as
interest rates and collateral required, estimates show a stronger influence of microfinance with
respect to informal and bank lending on variable input expenditure, supporting the idea that
microfinance incentive devices (joint responsibility, peer monitoring, social sanctions, future credit
denial in case of default, etc.) are effective in order to promote a productive use of funds.
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Dellien, H.; Burnett, J.; Gincherman, A. & Lynch, E. (2005). “Product
Diversification in Microfinance: Introducing Individual Lending”. Women’s World
Banking.
Abstract: Group-based lending strategies have become widely established amongst MFIs - these
include solidarity group lending, especially popular in Latin America, and village bank approaches
that are prevalent in Asia and Africa. As part of a drive to provide a diversified selection of financial
products, many MFIs in all regions have begun to expand their available credit products to include
individual loans for some of their clients. This report points out that the objective of many MFIs in
introducing individual lending has been to reduce the migration of valued clients to the
competition, and to enhance their ability to attract potential new clients - group and individual loan
methodologies represent dramatically different approaches to lending. The purpose of this paper
is to set out the Women's World Banking (WWB) approach to integrating individual loan products
into group lending institutions. In doing so, the paper describes the processes and tools developed
by WWB and aims to provide practical assistance to the increasing number of group microlenders
globally that are beginning to provide individual lending products. WWB has developed a
framework designed not as a blueprint, but as a series of guiding questions that aim to anticipate
the decisions and challenges encountered by institutions in introducing individual lending.
Fernando, N.A. (2003). “Pawnshops and Microlending: A Fresh Look is Needed”.
Finance for the Poor, Vol. 4, No.1. ADB.
Abstract: Pawnshops are an important source of microcredit in many developing countries,
especially in Asia. Nevertheless, many practitioners, policymakers, and funding agencies seem to
be prejudiced against pawnshops. They consider pawning to be a “desperate measure” and an
activity that needs to be curtailed. As a result, some countries have laws that inhibit pawning by
private sector operators. In other countries, pawning has not yet received adequate attention,
despite its potential as a useful service. The purpose of this note is to encourage those who are
interested in finance for poor and low-income households to take a fresh look at pawning. The note
briefly examines some of the assumptions that have contributed to the prejudices against and
neglect of pawning, and the need for a fresh look, citing relevant experiences in Indonesia and Sri
Lanka.
Gangopadhyay, S. & Lensink, R.W. "Delegated Monitoring and Moral Hazard in
Underdeveloped Credit Markets”. (Available online: Feb, 2007).
Abstract: This paper originates from the current move to individual-based lending systems by
many microfinance institutions and the fear that this move will lead to a decrease in access to
credit for the poor. More specifically, the paper examines how an individual-based lending scheme
can be devised such that moral hazard issues can be addressed, even when straight forward
individual lending is unable to do so. We show that the moral hazard problem can be solved if
microfinance institutions hire informal lenders to monitor the borrowers. In addition, we show that
by offering the informal lender a demandable debt contract a simple incentive scheme could be
obtained that induces the informal lender to collect the necessary information, and to truthfully
reveal this information.
Gonzalez-Vega, C. (1984). “Credit Rationing Behavior of Agricultural Lenders:
The Iron Law of Interest-Rate Restrictions”. In Undermining Rural Development
with Cheap Credit, edited by Dale W Adams, Douglas H. Graham, and J.D. Von
Pischke. Boulder: Westview Press. p. 78-96.
Haberberger, M.L. & Kuasakul, N. (2003). “Time for rethink on loans - Rural
lending based on formal collateral is not flexible enough”. Bangkok post.
Abstract: The use of loan collateral in rural and micro lending in Thailand, as in many developing
countries, is beset with considerable difficulties. This article questions whether the programme of
land reform proposed by the Thai government, which includes increasing the use of land
documents as collateral against loans from state banks, is beneficial. At present BAAC focus either
on joint liability or land mortgage. Rural micro lending should be based more on preventive
measures, such as obtaining comprehensive information about a borrower's household and
enterprises and careful monitoring to keep risks to a minimum. The authors recommend that the
Government should support rural borrowers by ensuring that all state banks offer cash flow based
loans with frequent repayment schedules, accept a variety of collateral types and set an interest
rate which is risk based.
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Hoff, K. & Stiglitz, J.E. (1998). “Moneylenders and bankers: price-increasing
subsidies in a monopolistically competitive market”. Journal of Development
Economics, Volume 55, Issue 2, April 1998, Pages 485-518.
Abstract: In many areas of the world, a significant part of the cost of obtaining a good or service is
the cost of enforcing the contracts entailed in its provision. We present models of markets with
endogenous enforcement costs, motivated by studies of rural credit markets. We show that
subsidies may have perverse effects under monopolistic competition, increasing prices or inducing
exit. Higher prices (interest rates) result from the loss of scale economies or from negative
externalities among suppliers. The models are consistent with the puzzling evidence that infusions
of government-subsidized formal credit have not improved the terms offered by moneylenders.
Iqbal, F. (1988), "The Determinants of Money Lender Interest Rates: Evidence
from Rural India". The Journal of Development Studies, Volume 24, Number 3,
April, pp. 364-378.
Jones, J.H.M. (1991). "Jain Shopkeepers and Moneylenders: Rural Informal
Credit networks in South Rajasthan." The Assembly of Listeners. Ed. Carrithers
and Humphrey. Cambridge: CUP, 1991. 109-138.
Klein, B.; Meyer, R.L.; Hannig, A.; Burnett, J. & Fiebig, M. (1999). “Better
Practices in Agricultural Lending”. Rome: FAO and GTZ, Agricultural Finance
Revisited, No 3.
Masciandro, D. & Dalla Pellegrina, L. (2003). “'New' Microfinance? Informal
Credit and Group Lending in Competitive Markets.” Bocconi University, Paolo
Baffi Centre Working Paper No. 156.
Abstract: In a given geographical area, what happens when a farmer, a craftsman, or a small
merchant can choose between participating in a group lending or resorting to an informal moneylender? This paper presents a theoretical model that examines such situations, placing group
lending and informal credit in a competitive market context. The results indicate that the higher
the value of the borrower's assets, the more he will tend to prefer group lending. Then if
policymakers desire to facilitate access to group lending to poorer classes, it would seem advisable
for them to exclude access to group lending for owners of assets that exceed certain thresholds,
and to exclude assets that may have a special value for the borrower. Also, the lower the value the
borrowers place to reputation, and the more the non-governmental organization (NGO) proposing
the group lending contract is capable of offering effective non credit services and be efficient in
organizing its structure, the more he will favour group lending. Then, before to introduce the group
lending in a given area, the NGO should understand carefully the economic and social features of
the community to which it is extending credit; furthermore the supply of group lending is
consistent with the hard budget constraint. Finally group lending does not seem to offer particular
risks of adverse selection. Therefore group lending can be viewed as perfectly consistent with a
market approach.
Montgomery, R. (1996). “Disciplining or Protecting the Poor? Avoiding the social
costs of peer pressure in solidarity group micro-credit schemes”. Journal of
International Development March, 8 (2); 289.
Abstract: This paper utilizes case studies from Bangladesh and Sri Lanka to explore a disadvantage
of group lending schemes: the unnecessary social costs of repayment pressure. The author argues
that extending credit and meeting the needs of the poor need not be incompatible. The poor can
be protected from socially damaging peer pressure lending practices via flexible repayment
schedules, savings facilities and short-term, high-interest consumption loans. The analysis
suggests protectional devices for poor borrowers, better staff performance indicators, and selfmanagement of some resources by the poor.
183
Navajas, S. & Gonzalez-Vega, C. (2000). “Innovative Approaches to Rural
Lending: Financiera Calpia in El Salvador”. Ohio State University, Rural Finance
Program. June.
Abstract: Given the increased interest in rural lending, it is important to understand how a few
financial organizations have been successful in reaching the rural areas. One of these
organizations is Financiera Calpiá in El Salvador. Understanding the lending technology of Calpiá,
the problems this technology has solved, and the challenges the organization still faces, is
important for helping others to draw lessons about what can be done and what cannot be done in
rural lending. The paper is organized in six parts.
•
•
•
•
•
•
The first part briefly discusses the difficulties of rural lending, in order to identify the
problems that Calpiá’s lending technology has been asked to solve.
The second part describes the Salvadoran context, with emphasis on the target markets
reached by Calpiá and on the obstacles emerging from the environment.
The third part presents a snapshot of Financiera Calpiá.
The fourth one identifies the general principles followed by Calpiá in designing and
implementing its lending technology.
The fifth part describes the rural lending technology of Calpiá in depth. This part examines
actual procedures, as they are implemented, and, when possible, it compares the
procedures used in rural areas with those used in urban areas. This part also discusses,
step-by-step, the problems that each procedure solves during the lending process.
The last part summarizes lessons, presents conclusions, and explores future challenges.
To manage systemic risk, Calpiá undertakes portfolio diversification at three levels (the household,
the rural portfolio, and at the total portfolio level). The institution also accepts diverse types of
assets as collateral. The most outstanding feature, however, is the attention to ensuring
availability of appropriate human capital. The selection and training of loan officers receives
substantial and competent attention. Calpiá’s training program is outstanding. They have found
that the stock of knowledge needed to understand agricultural activities and to establish farm
repayment capacity is considerably more complex than in urban environments. The experience of
Financiera Calpiá in rural lending has much to teach others and this paper provides a detailed
insight into how they have developed this side of their business.
Navajas, S.; Gonzalez-Vega, C. & Hopkins, J. (2000), “Do Lending Technologies
Exclude the Poor?” unpublished BASIS paper, Columbus, Ohio: The Ohio State
University.
Navajas, S.; Conning, J. & Gonzalez-Vega, C. (2003). “Lending Technologies,
Competition, and Consolidation in the Market for Microfinance in Bolivia”. Journal
of International Economics. Volume 15, 747-770.
Abstract: Abstract: Innovations in lending technologies and market saturation have made La Paz,
Bolivia one of the most rapidly changing and competitive microfinance markets in the world. Two
lenders stand out: the pioneer BancoSol, which first profitably expanded the loan market with
group liability loans, and the later entrant Caja Los Andes, which offered individual liability loans
using costlier screening. Using a simple model of credit market competition with moral hazard and
adverse selection we analyse how the terms of loan contracts were adapted to changes in
competition and how borrowers’ incentive to remain diligent and repay loans was affected.
Hypothesized behaviour derived from the mod el is tested and shown to be consistent with
empirical evidence from loan records and a household survey.
Sen, B. (1989). “Moneylenders and informal financial markets: insights from
Haor areas of rural Bangladesh” Research Report No. 100, Bangladesh Institute
of Development Studies.
Teranishi, J. (1994). “Modernization of financial markets: An analysis of informal
credit markets in prewar Japan”. World Development, Volume 22, Issue 3, March
1994, Pages 315-322.
Abstract: Why are informal credit markets in developing countries so persistent and difficult to
eradicate? This paper argues that one of the basic reasons for this lies in the efficiency of
information channels between informal lenders and their customers. This hypothesis is tested by
estimating the demand and supply functions of informal credit using cross-section regional data for
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prewar Japan. The effectiveness of the so-called high deposit rate policy based on McKinnon-Shaw
theory is also evaluated from this viewpoint.
Valenzuela, L. (2000). “Comments on Lending Institutions”. Presentation at the
IADB conference “Promising Practices in Rural Finance,” Washington, D.C., May
22.
ˆ Co-operatives
Barham, B.L.; Boucher, S. & Carter, M.R. (1996). “Credit constraints, credit
unions, and small-scale producers in Guatemala”. World Development, Volume
24, Issue 5, May 1996, Pages 793-806.
Abstract: Efficient and equitable development outcomes may depend, in part, on whether formal
financial institutions leave low-wealth producers tightly constrained in their access to credit. If so,
can cooperative institutions efficiently relax these constraints? These issues are explored using
survey data gathered from 950 small-scale producer households in areas of Guatemala with
market-oriented credit unions that mobilize savings and make unsubsidized loans. Nonprice
rationing by banks is found to be common among lower wealth households, while credit unions
relax credit constraints for a significant portion of those rationed by banks, but not the poorest of
the study households.
Chowdhury, P.K.; Huq, M.A.; Rahman, S.A. (1987). “Cooperatives as institutions
for development of the rural poor”. Kotbari: Academy for Rural Development.
Christen, R.P. & Vogel, R.C. (1984). “The Importance of Domestic Resource
Mobilization in Averting Financial Crisis: The Case of Credit Unions in Honduras”.
Conference Paper 13. Presented at the conference, “Financial Crisis, Foreign
Assistance, and Domestic Resource Mobilization in the Caribbean Basin,” at The
Ohio State University, Columbus, Ohio, 30 April–1 May 1984.
CPD (Cooperative Promotion Department). (1989). “A Study on the Growth of
Agricultural Cooperatives in Thailand 1978-1987”. Bangkok: the Cooperative
Promotion Department.
CUNA. (1983). “What Everyone Should Know About Credit Unions? Information
Booklet”. Madison, WI: Credit Union National Association, 15 p.
Cuevas, C. (1988). “Savings and Loans Co-operatives in Rural Areas of
Developing Countries: Recent Performance and Potential”. Savings and
Development, Vol. 13, No. 1, pp. 5-18.
Dejene, A. (1993). “The Informal and Semi-formal financial sectors in Ethiopia:
A Study of Iqub, Iddir, and Saving and Credit Cooperatives”. African Economic
Research Consortium, Nairobi, Kenya.
Fraslin, J.H. (2004). “CECAM: A Cooperative Agricultural Financial Institution
Providing Credit Adapted to Farmers’ Demand in Madagascar”. Paving the Way
Forward for Rural Finance: An International Conference on Best Practices Case
Study.
Abstract: The formal financial sector in Madagascar is poorly spread in the rural hinterlands. Rural
lending is based on personal relations, and is distinguished by high costs and high interest rates.
As a solution, in 1993, savings and agricultural credit cooperative societies called "Caisses
d'Epargne et de Credit Agricole Mutuels" (CECAM) were started. These have disbursed loans
amounting to over seven million US Dollars. CECAM has been benefiting from various sources of
funding and support of international organizations and its network is characterized by:
185
•
•
•
Strong linkages with farmer organizations;
Foundation of stable equity capital;
Credit tailored specifically for farmers.
The author also provides the following information:
•
A strategic development plan (2000 - 2003) was initiated in the year 2000 by the setting
the Interregional Union of CECAMs - UNICECAMs. This has acquired the recognition of a
credit institution.
•
There is a proposition of creating a new 'mixed' financial institution as a limited company,
which will have full operational autonomy by the years 2001 to 2005. This will liaison with
all financial partners and will supply common financial services and technical assistance.
The case study concludes with lessons from the CECAM experience. These are:
•
Strong agricultural orientation leads to more efficiency;
•
Farmers generally take their own credit decisions;
•
Internal capitalization should be used to promote ownership;
•
Delinking savings and credits helps in repayment;
•
Promoting competition and regional regulation helps in efficient running of the CECEM
network;
•
The model retains authentic basic cooperative management at village level and banking
competence at central level.
Gaboury, A. & Quirion, M. (2006). “Why We Can No Longer Afford to Ignore
Financial Cooperatives in the Effort to Increase Access to Financial Services”.
Développment international Desjardins, Québec, Canada.
Abstract: This document aims to offer a number of elements to stimulate discussion on the role of
powerful financial cooperatives as tools for increasing access by the poor to financial services. The
paper suggests that in the wide-ranging debate within the microfinance community on
sustainability and accessibility, financial cooperatives have never really entered the fray. The
authors argue that there of course problems within the cooperative sector but the problems lie
mainly with specific institutions. For example, many cooperatives formed part of state policy to
expand access to credit and have almost become “organs of the state”. Furthermore, there
remains a lack of reliable supporting data on the extent of outreach of this sector and its
performance. Nevertheless, cooperatives are said here to be an “amazing” delivery mechanism
when effectively networked. They are often organised in close proximity to the communities they
serve and are often located in rural areas or in communities that are ignored by other institutions.
The authors argue that when networked, each cooperative becomes a point of redistribution for
the services and resources of the whole network (the effect of which multiplies the more the
network is integrated and communication and interaction are facilitated. The authors also note that
cooperatives, by their nature, seek to increase local and collective wealth because they belong to
their members. Furthermore, cooperatives often place more emphasis on savings mobilisation and
the creation of local capital than do other institutions. The paper also discusses how the
governance and performance of financial cooperatives is strengthened when they are organised
into federated networks, as well as how cooperatives can be synonymous with sustainability and
outreach.
Galor, Z. (2005). “Rural Community Development: Ownership and Functioning”.
Abstract: The traditional rural areas are the key to any successful development movement in the
emerging world. In these countries there are numerous attempts to create rural communities
aimed at the promotion of sustainable development of the rural population. This paper will try to
learn from some of these attempts, especially in understanding the links between the individual
members of these communities and their respective communities. A special emphasis is given to
cooperatives, which in their multi-purpose mode are the initial structure to build up strong rural
communities. Understanding what cooperatives are, their advantages and limitations, is an
important part of any attempt to succeed in this development. The author gives his interpretation
of share capital, surplus value, asset valuation and dealing with reserve funds. He concludes that
when really successful cooperatives are created in the traditional rural areas, they can serve as the
basis of the creation and the elaboration and the strengthening of rural communities. Simple
multi-purpose societies have the best chance of success.
186
Kawai, S. (1999). “The Groundwork for Agricultural Co-operative Finance in a
Transition Economy”. Agricultural Finance and Credit Infrastructure in Transition
Economies: Proceedings of OECD Expert Meeting, Moscow, Feb. 141-47.
Moscow: O.E.C.D.
Abstract: For transition economies, where farming is centered around relatively small farms or
groups of small farms, organization into co-operatives will be effective. Credit co-operatives can
help farmers prepare farm plans and instruct them on borrowing at their own risk and the process
of loan repayment. Agricultural credit co-operatives provide incentives to save and promote the
recycling of funds in the farming sector. The experience of the credit union in the Kyrgyz Republic
provides a good example.
Lele, Uma (1981). "Co-operatives and the Poor: A Comperative Perspective".
World Development, Volume 9, pp 55-72.
Magill, J. (1991). "Credit unions: a formal sector alternative for financing
microenterprise development." GEMINI Working Paper No. 22. New York: PACT
Publications.
Mishra, D.P. & Shah, T. (1992). “Analysing organizational performance in village
co-operatives”. Small Enterprise Development, Volume 3, Number 1, March
1992, pp. 4-13(10).
Abstract: This article attempts to explain levels of organizational performance in Indian village cooperatives using insights from some thirty recent case studies. It suggests that underperformance
in co-operatives can be traced to failures in one or more of the five interacting sub-systems that a
co-operative is composed of as a human organization: namely, governing structure, operating
system, critical linkages, patronage system and the micro-environment. The article then argues
that while isolated examples may be found of co-operatives which are successful because of their
managers or their particular context for sources of large-scale improvements in the general
performance of co-operatives, we would have to look to major improvements in the design of cooperative systems and the macro-environment within which they operate. Finally, the article lists a
set of design principles emerging from the framework evolved in the paper. The basic fieldwork
underlying this paper was undertaken by the authors and students of the Institute of Rural
Management Anand (IRMA). The authors acknowledge the support provided by IRMA for
undertaking this field research.
Murray, J. & Rosenberg, R. (2006). “Community-managed loan funds: which
ones work?” Small Enterprise Development, Volume 17, Number 3, September
2006, pp. 13-27(15).
Abstract: In remote rural areas, usually the only form of viable microfinance is some form of
community-managed loan fund (CMLF). Professionally managed MFIs usually provide more secure,
well-managed services, but their higher running costs prevent them from operating in many rural
areas where CMLFs can succeed. This article, drawing on a review of the performance of many
CMLF projects established by donors and NGOs, finds that their success or failure is linked to the
source of their funds, and also to the quality of external support they receive. It finds that most
CMLFs that rely on external funding from the start fail. The article concludes with implications for
development agencies that support CMLFs.
Schrieder, G.R. & Cuevas, C.E. (1992). “Informal Financial Groups in
Cameroon”. in Informal Finance in Low-Income Countries, edited by Dale W
Adams and Delbert A. Fitchett (Boulder, Colorado: Westview Press, 1992):
pp.43-56.
WOCCU (1991), “What is a Credit Union? Information Booklet”. Madison, WI:
World Council of Credit Unions, Inc., 6p.
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Formal-Informal Finance Interlinkage
Adams, J.Q.; Brunner, H.W. & Raymond, F. (2003). "Interactions of Informal
and Formal Agents in South Asian Rural Credit Markets”. Review of Development
Economics, Vol. 7, pp. 431-444.
Abstract: The paper provides a realistic explanation for the persistently large loan costs in the
informal and formal credit markets of South Asia. In the presence of the adverse selection
problems that arise from information asymmetries and discrepancies in credit services, price
competition in somewhat differentiated products is sufficient to generate the high interest rate
convergence observed in Nepalese credit markets. Most prior literature emphasizes collusion as
the cause and leads to ineffective entry-oriented policy prescriptions. The new interpretation
stresses the need to reduce information asymmetries, product differentiation, and moral hazard
risks, while widening the spatial orbits of agent competition.
Andersen, T.B. & Malchow-Møller, N. (2006). “Strategic interaction in
undeveloped credit markets”. Journal of Development Economics, Volume 80,
Issue 2, August 2006, Pages 275-298.
Abstract: This paper studies the strategic interaction between informal and formal lenders in
undeveloped credit markets. In a model with adverse selection, loan seniority, market power, and
differences in the cost of lending, it is shown that under general conditions a co-funding
equilibrium will be a Nash outcome of the game. We demonstrate that a collateral requirement in
connection with formal loans always generates a new co-funding equilibrium in which both lenders
earn higher profits. A government subsidy to the formal lender may have the opposite effect. We
relate our results to existing empirical evidence and the emerging discussion of how to best ensure
financial viability and outreach of microfinance institutions.
Atieno, R. (2001). “Formal and informal institutions' lending policies and access
to credit by small-scale enterprises in Kenya: an empirical assessment”. African
Economic Research Consortium (AERC) ed.The Regal Press Kenya.
Abstract: The main objective of this study is to investigate and assess the role of the institutional
lending policies of formal and informal credit institutions in determining the access to and use of
credit facilities by small-scale entrepreneurs in rural Kenya. The results of the study show the
limited use of credit reflects lack of supply, resulting from the rationing behaviour of both formal
and informal lending institutions. The study concludes that given the established network of formal
credit institutions, improving lending terms and conditions in favour of small-scale enterprises
would provide an important avenue for facilitating their access to credit.
Basu, K.; Clive, B. & Bose, P. (1999). "Interlinkage, Limited Liability, and
Strategic Interaction". World Bank Policy Research Working Paper No. 2134.
Abstract: When will a landlord prefer to supply both land and credit to a tenant rather than allow
the lender to borrow from a separate moneylender? The paper shows that if tenancy contracts are
obtained prior to contracting with the moneylender, and the tenant has limited liability, interlinked
deals will predominate over the alternative situation where the landlord and the moneylender act
as noncooperative principals. Basu, Bell, and Bose analyze the example of a landlord, a
moneylender, and a tenant (the landlord having access to finance on the same terms as the
moneylender). It is natural to assume that the landlord has first claim on the tenant's output (as a
rule, if they live in the same village, he may have some say in when the crop is harvested). The
moneylender is more of an outsider, not well placed to exercise such a claim. A landless, assetless
tenant will typically not get a loan unless he has a tenancy. Without interlinkage, the landlord is
likely to move first. In the noncooperative sequential game where the landlord is the first mover
and also enjoys seniority of claims if the tenant defaults, interlinkage is superior, even if contracts
are nonlinear - a result unchanged with the incorporation of moral hazard. The main result is that
if a passive principal - one whose decisions are limited to exercising his property rights to
determine his share of returns - is the first mover, allocative efficiency is impaired unless his
equilibrium payoffs are uniform across states of nature. The limited liability of the tenant creates
the strict superiority of interlinkage by making uniform rents nonoptimal when, with noncollusive
principals, the landlord (the passive principal) is the first mover. A change in seniority of claims
from the first to the second mover (the moneylender) further strengthens this result. But uniform
payoffs for the first mover are not essential for allocative efficiency if he is the only principal with a
continuously variable instrument of control. So, the main result is sensitive to changes in the order
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of play but not to changes in the priority of claims. This paper - a product of the Office of the
Senior Vice President and Chief Economist, Development Economics - is part of a larger effort in
the Bank to understand the institutional structure of rural markets and its welfare implications.
Biais, B. et al. (2001). “Informal and Formal Credit Markets and Credit Rationing
in Cote de Ivoire”. Oxford Review of Economic Policy, Vol. 17, No. 4.
Abstract: This paper endeavours to shed light on the respective roles of the formal and the
informal credit markets in developing countries. We use survey data for manufacturing firms in
Cote de Ivoire, documenting their access to informal credit markets, their investments, and their
financing. We confront these data with a simple moral-hazard model of credit rationing. Because of
socio-cultural effects, the magnitude of moral-hazard problems and the cost of credit can be
different in the informal credit market. We offer a structural econometric estimation of this model.
Our empirical results point at severe moral-hazard problems for all firms, and reduced cost of
credit in the informal market. Our point estimate suggests that moral-hazard problems can be
alleviated in the informal credit market. Policy implications of our results are sketched.
Bose, P. (1998). “Formal-informal sector interaction in rural credit markets”.
Journal of Development Economics 56: 265-80.
Abstract: The majority of small cultivators in the less developed countries are not regarded as
credit-worthy by the formal sector financial institutions, and are forced to borrow from the
moneylenders in the informal credit market. This paper shows that when such borrowers differ in
their likelihood of default, and the moneylenders are asymmetrically informed about the clientspecific degree of risk, the policy of providing cheap credit through the formal sector can generate
adverse composition effects' which worsen the terms of credit and the availability of loans in the
informal sector.
Chandavarkar, A. (1992). “Of Finance and Development: Neglected and
Unsettled Questions”. World Development, Volume 20, Issue 1, January
1992, Pages 133-142.
Abstract: The article analyzes some of the neglected and still unsettled issues on the
interrelationship of finance and development and in the subdiscipline of finance; notably, the
implications of the dichotomy of formal and informal finance; the modalities and sequencing of
financial reform; the challenge of maintaining competition in oligopolistic systems; the scope for
market-related monetary policy instruments; the case for autonomy of central banks and
divestiture of their developmental role and revamping of their prudential functions. It argues for a
sharply focused, country-specific, issues-oriented research agenda.
Carpenter, S.B. & Jensen, R.T. (2002). "Household Participation in Formal and
Informal Savings Mechanisms: Evidence from Pakistan”. Review of Development
Economics, Vol. 6, pp. 314-328.
Abstract: Savings are an important determinant of both individual and national wellbeing.
Typically, households employ a wide range of mechanisms for saving, including both formal and
informal institutions. The choice of savings instrument has important micro- and macroeconomic
implications. However, little is known empirically about the patterns of use of these instruments,
or the factors affecting household decisions/abilities to use them. The authors apply householdlevel data from a nationally representative survey for Pakistan to explore these issues in detail. In
particular, they focus on the choice between banks and bisi, an informal saving committee similar
in nature to a rotating-savings-and-credit association.
Chaudhuri, S. & Manash R.G. (1995). “An Analysis of Delayed Formal and
Interlinked Informal Credit in Agriculture”. Journal of International Trade &
Economic Development, Vol. 4, No. 1.
Abstract: A model of interlinked credit-product contracts between small farmers and large farmers
when the small farmer faces delay in getting formal credit and the large farmer does not, has been
developed. The small farmer remains on the reservation income level, and his reservation income
is inversely related to the length of the delay. However, this does not hamper the productivity of
the small farmer. The large farmer extracts the surplus through the interlinked contract and this
surplus is positively related to the length of the delay. Interlinkage and non-interlinkage equilibria
become identical if the small farmer gets the formal credit at the beginning of the crop cycle.
Various subsidy policies worsen the distribution of formal credit.
189
Chaudhuri, S & Gupta, M.R. (1996). “Delayed Formal Credit, Bribing and the
Informal Credit Market in Agriculture: A Theoretical Analysis”. Journal of
Development Economics, Vol. 51, No. 2.
Abstract: The paper presents a theory of interest rate determination in the informal credit market
in backward agriculture. The market for informal credit is created by the delay in disbursement of
formal credit. The delay is controlled by the official of the formal credit agency, and he is bribed by
the farmer to reduce the delay. The official and the moneylender play a non-cooperative game in
choosing the bribing rate and the informal interest rate, respectively. The informal sector interest
rate and the effective formal sector interest rate (incorporating the bribe) are equal in equilibrium.
Agricultural price and credit subsidy policies may raise the interest rate in the informal credit
market.
Chaudhuri, S. (1998). “Inadequate Formal Credit and the Informal Credit Market
in Agriculture: A Theoretical Analysis”. Journal of Quantitative Economics, Vol.
14, No. 1, July.
Abstract: A theoretical analysis of interest rate determination in the informal credit market has
been presented when the market for informal credit is created by inadequate supply of formal
credit. The official of the formal credit agency controls the supply of formal credit and he gets a
bribe from the moneylender when he rations the supply of formal credit to the farmer. The
moneylender and the official play a cooperative game choosing jointly the amount of formal credit
and the informal interest rate. Development policy like a credit subsidy policy reduces the informal
interest rate and raises the amount of formal credit disbursed by the official. On the contrary, a
price subsidy policy raises the informal interest rate and lowers the amount of formal credit
disbursed. The paper is an attempt to justify the desirability of a credit subsidy policy theoretically
when it is being questioned in a developing country like India.
Chaudhuri, S. (2000). “Interactions Between Two Informal Sector Lenders and
Interest Rate Determination in The Informal Credit Market: A Theoretical
Analysis”. Indian Economic Review, Vol. 35, No. 2, July.
Abstract: The paper provides a theory of interest rates determination in the informal credit market
in backward agriculture highlighting the interactions between two informal sector lenders (a
professional money lender and a trader-interlocker) and explains the prevalence of different
interest rates in the rural credit market. The trader and the moneylender play a non-cooperative
game in choosing the extent of interlinkage and the non-interlinked informal interest rate,
respectively. In the interlinked credit-product contract, the trader offers the interlockees a product
price equal to the open market price and his entire surplus comes from his activities in the credit
market. These results are completely opposite to those found in the existing literature on
interlinkage. A price subsidy policy reduces the extent of interlinkage chosen by the trader while a
credit subsidy policy may raise it. Besides, the subsidy policies unequivocally raise the noninterlinked informal interest rate of the moneylender but may lower the welfare of the farmers and
the agricultural productivity. In this context, an alternative credit policy of forging a vertical
linkage between the formal and informal credit markets has been considered. It has been found
that a credit subsidy policy under the new system is able to raise the agricultural productivity and
improve the welfare of the farmers by ameliorating their borrowing terms in the credit market.
Chaudhuri, S. & Dwibedi, J.K. (2002). "Horizontal and Vertical Linkages Between
Formal and Informal Credit Markets in Backward Agriculture: A Theoretical
Analysis”. Indian Journal of Social Development, Vol. 2, No. 1, June.
Abstract: The paper shows that the policy of forging a vertical linkage between the formal and
informal credit markets is distinctly superior to the existing credit policy of horizontally substituting
the informal sector by the formal one. An inflow of subsidized formal credit to the informal lenders
not only ensures better terms of borrowing to the small borrowers but also leads to higher
agricultural productivity vis-a-vis the horizontal linkage case. Even if the informal sector lenders
are allowed to collude, the informal interest rate is still lower in the vertical linkage case.
190
Chaudhuri, S. (2002). "Interaction Of Formal and Informal Credit Markets In
Backward Agriculture: A Theoretical Analysis”. Game Theory and Information
0511001, EconWPA.
Abstract: In this paper, a model of interaction of formal and informal credit markets has been
developed where the bank official (the ultimate provider of formal credit) faces a lending
constraint. The bank official takes a bribe from the borrowers to disburse formal credit and he
deliberately debars some potential borrowers from getting bank credit. Inadequate supply of
formal credit and exclusion of a few borrowers by the official create a market for informal credit.
The bank official and the moneylender (the supplier of informal credit) play a non-cooperative
game in determining the bribing rate and the informal interest rate simultaneously. The central
objective of the paper is two-fold. First, it shows that an agricultural credit subsidy policy may be
counterproductive even when formal and informal credits are substitutes. This is contrary to the
Gupta and Chaudhuri (1997) result that a credit subsidy policy is counterproductive only when the
two types of credit are complementary to each other. Secondly, the paper considers two
alternative ways of formulating a credit subsidy policy: (1) through an increase in the aggregate
volume of formal credit supplied to the borrowers, keeping the formal sector interest rate at a
reasonable level; and, (2) through a decrease in the rate of interest charged on this type of credit.
The paper shows that if a credit subsidy policy is undertaken via the first path, it is actually able to
lower the informal sector interest rate and improve both the agricultural productivity and welfare
of the farmers. This result is crucial because all the earlier papers in this line have analyzed the
effects of a credit subsidy policy through the second route and found it to be counterproductive in
the presence of corruption in the distribution of formal credit.
Diagne, A. (1999). “Determinants of Household Access to and Participation in
Formal and Informal Credit Markets in Malawi”. IFPRI FCND paper No. 67.
Abstract: The paper uses the concept of credit limit to analyze the determinants of household
access to and participation in informal and formal credit markets in Malawi. Households are found
to be credit constrained, on average, both in the formal and informal sectors; they borrow, on
average, less than half of any increase in their credit lines. Furthermore, they are not discouraged
in their participation and borrowing decisions by further increases in the formal interest rate
and/or the transaction costs associated with getting formal credit. This suggests that getting
access to credit is much more important than its cost for these households. Hence, credit policies
should focus on making access easier rather than providing credit with subsidized interest rates.
The composition of household assets is found to be much more important as a determinant of
household access to formal credit than the total value of household assets or landholding size. In
particular, a higher share of land and livestock in the total value of household assets is negatively
correlated with access to formal credit. However, land remains a significant determinant of access
to informal credit. Therefore, poor households whose assets consist mostly of land and livestock
but who want to diversify into nonfarm income generation activities may be constrained by lack of
capital. As informal loans are usually too small to help poor households start a viable nonfarm
business, these households may be forced to rely on farming as the sole source of income, despite
its unreliability because of the frequency of drought in Malawi. Finally, formal and informal credit
are found to be imperfect substitutes. In particular, formal credit, whenever available, reduces but
does not completely eliminate informal borrowing. This suggests that the two forms of credit fulfill
different functions in the household’s intertemporal transfer of resources.
Esguerra, E.F. (1987). “Can Informal Lenders be Co-opted into Government
Credit Programs?” Manila: Working Paper Series no. 87-03, Philippine Institute
for Development Studies, April, 25 pp.
Floro, M.S. & Roy, D. (1997). “Vertical Links between Formal and Informal
Financial Institutions”. Review of Development Economics. vol. 1(1), pages 3456, February.
Abstract: We investigate vertical linkages between formal and informal financial institutions.
Specifically, we study a policy that expands formal credit to informal lenders, in the hope that this
will improve loan terms for borrowers who are shut out of the formal sector. We pay special
attention to the Philippines. We argue that the effects of stronger vertical links depend upon the
form of lender competition. In particular, if the relationship between lenders is one of strategic
cooperation (sustained by threats of reprisal in a repeated setting), an expansion of formal credit
may worsen the terms faced by informal borrowers.
191
Germidis, D. (1990). "Interlinking the Formal and Informal Financial Sectors in
Developing Countries" Savings and Development, Volume XIV, Number 1, pp. 521.
Germidis, D.; Kessler, D. & Meghir, R. (1991). “Financial Systems and
Development: What Role for the Formal and Informal Financial Sectors?”
Development Centre Studies. Paris: OECD.
Ghate, P.B. (1992). “Interaction between the formal and informal financial
sectors: The Asian experience”. World Development, Volume 20, Issue 6, June
1992, Pages 859-872.
Abstract: The nature of the interaction between the formal and informal financial sectors in
developing countries is a subject with important policy implications. It has implications for the
future of informal finance as the formal sector expands in the long term—will the informal sector
wither away, as the traditional view of financial dualism assumes, or will it continue to play an
important complementary role, perhaps even growing in absolute size? Second, the pattern of two
major policy approaches often advocated toward the informal sector—offering it stronger
competition so as to induce it to improve its terms, and promoting linkages with it so as to take
advantage of its lower transactions costs in reaching smaller and poorer borrowers. Third, the
existence of a large informal sector has implications for the efficacy of monetary and credit policy
in achieving stabilization objectives. Fourth, the interaction between the formal and informal
financial sectors also has implications for the effects of financial liberalization through removing
restrictions on the deposit rate of interest. This paper draws on the experience of Asian countries
to address these issues.
Gupta, M.R. & Chaudhuri, S. (1997). “Formal Credit, Corruption and the Informal
Credit Market in Agriculture: a Theoretical Analysis”. Economica, Vol. 64, No.
254, May.
Abstract: The paper presents a theory of interest rate determination on informal credit in
backward agriculture when there is a market for formal credit. The farmer has to bribe the official
of the formal credit agency in order to get formal credit. The official and the moneylender play a
non-cooperative game in choosing the amount of formal credit and the informal interest rate,
respectively. The informal-sector interest rate and the effective formal-sector interest rate
(incorporating the bribe) are equal in equilibrium. A reduction in the formal interest rate and/or an
increase in the price of the product may lead to an increase in the equilibrium bribing rate and the
informal interest rate when the formal credit and the informal credit are complementary to each
other.
Jain, S. (1999). “Symbiosis vs. crowding-out: the interaction of formal and
informal credit markets in developing countries”. Journal of Development
Economics, Volume 59, Issue 2, August 1999, Pages 419-444.
Abstract: It is a common observation in many developing countries that enterprises are active
borrowers in both formal and informal credit markets. We propose a model in which the formal
sector's superior ability in deposit mobilization is traded off against the informational advantage
that lenders in the informal sector enjoy. The formal sector can screen borrowers by providing only
partial financing for projects, thereby forcing borrowers to resort to the informal sector for the
remainder of the loan. We use the model to predict how the market structure responds to changes
in the environment, and we consider the policy implications of various forms of government
intervention.
Manig, W. (1990). “Formal and informal credit markets for agricultural
development in developing countries — The example of Pakistan”. Journal of
Rural Studies, Volume 6, Issue 2, 1990, Pages 209-215.
Abstract: One of the most important factors for increasing agricultural productivity and production
in order to maintain growing populations in developing countries is the utilization of modern
technology. For financing the use of agricultural technology, governments establish legally
organized credit institutions which frequently offer subsidized credits. Such credits are made
available under the existing societal modes of distribution, which leads to the domination of scarce
resources by the elite in the rural regions, and, thus, to restriction in the access to credit for the
rural sub-classes. Should small farmers or tenants, etc. wish to benefit from the advantages of
192
modern agricultural technology, they have to depend on the informal credit market as a means of
financing. By taking Pakistan as an example, the importance of the informal credit market for
financing the use of modern technology from the period of the ‘Green Revolution’ until the present
can be shown. This informal credit market has contributed to keep tendencies towards social
polarization in the agricultural sector within limits, since an informal credit system that was not
efficient would have made it difficult for small farmers to use the productivity potentials of modern
agricultural technology and would have caused social differences to expand. The informal credit
market should be reinforced as a political measure for reducing tendencies towards social
polarization. This should occur at least until the formal credit institutions actually assume their
intended function for all rural groups.
Marr, Ana. (1999). “The Poor and their Money: what have we learned?” ODI
Poverty Brief ed. Overseas Development Institute.
Abstract: Money markets ought to allocate finance where it is most needed, and thus contribute to
greater productivity, employment and the reduction of poverty. Yet in practice they have not
performed this function at all well. Vast segments of the population are still unserved,
inappropriate financial services are offered and inflexible contracts are extended. Poor farmers and
small businesses are generally excluded from conventional financial institutions like the big
commercial banks, and have to resort to informal ways of saving, insuring and borrowing, such as
paying shopkeepers to keep their savings safely, or borrowing from moneylenders at very high
interest rates. What then are the obstacles to better access by the poor to finance in these
markets and how can governments and aid agencies intervene to improve matters?
McKernan, Signe-Mary,; Pitt, M. & Moskowitz, D.Z. (2004). "Use of the Formal
and Informal Financial Sectors: Does Gender Matter? Empirical Evidence from
Rural Bangladesh". World Bank Policy Research Working Paper No. 3491.
Abstract: Access to transfers and credit, whether cash or in-kind, is a major source of poverty
alleviation and income generation in many developing countries around the world. Women may
especially benefit from transfers and credit in countries such as Bangladesh, where they often
have few work alternatives. In this paper, the authors descriptively examine the formal and
informal financial sectors of rural Bangladesh, placing special emphasis on differences between
men and women. Their analysis uses unique data on the credit and transfer behaviors of 1,800
households in rural Bangladesh. The authors focus on five important questions: How important are
the formal and informal financial sectors? What are the primary sources of gifts and loans within
those sectors? Do men and women rely on different sources for finances (for example, formal
versus informal) or different types of finances (for example, transfers versus loans)? How have the
financial sectors evolved during the 1990s? What is the relationship between the formal and
informal sectors? This paper - a product of the Gender Division, Poverty Reduction and Economic
Management Network - is part of a larger effort in the network to integrate gender into economic
policy work.
Meghir, R. (1991), "Formal and Informal Financial Support for Small and MicroEnterprises" Development”. Journal of the Society for International
Development. Issue no.1, pp. 102-108
Nayar, C.P.S. (1986), "Can Traditional Financial Technologies co-exist with
Modern Financial Technologies? The Indian Experience". Savings and
Development, Volume X, Number 1, pp. 31-56.
Neshamba, F. (1997). “The transition of enterprises from informality to formality
- some evidence from Zimbabwe”. Small Enterprise Development, Volume
8, Number 4, December 1997, pp. 48-53(6).
Abstract: The idea that the informal sector can never do more for the economy than provide a
temporary holding ground for the unemployed is challenged in this article. Research into formal
sector businesses in Zimbabwe reveals that many businesses started off in the informal sector,
before growing and 'graduating' into the formal sector. The initial survivalist strategies of using
family labour and working from home were replaced by strategies to upgrade technology, employ
additional labour and move premises into industrial areas. Eventually it is difficult to distinguish
between 'graduating' enterprises and those that started out in the formal sector.
193
Ngwira, A.B.A. (1995). “'Small enterprise' or the 'informal sector'?” Small
Enterprise Development, Volume 6, Number 1, March 1995, pp. 49-52(4).
Abstract: The following article describes the various criteria used for classifying small-scale
enterprises and points to anomalies in their use. The author concludes that often a simple
employment-size criterion is preferable to trying to define the term 'informal sector'.
Pagura, M. & Kirsten, M. (2006). “Formal—informal financial linkages: lessons
from developing countries”. Small Enterprise Development, Volume 17, Number
1, March 2006, pp. 16-29(14).
Abstract: Despite significant innovations in rural and microfinance over the years, millions of
people around the world do not have access to financial services. Can strategic linkages and
alliances between financial institutions help resolve this problem? Thanks to funding from the Ford
Foundation several researchers set out to answer this question.The results drawn from 12 case
studies conducted in eleven countries in Africa, Asia and Latin America indicate that financial
linkages are increasingly used by formal inancial institutions (public or private) to target rural
clients. A wide variety of less formal, often rural financial institutions are the linkage partners.
Initial evidence indicates that the partnership seem to afford both partners the opportunity to
overcome a weakness in what they can achieve on their own. But does this initial appeal translate
into anything sustainable and/ or replicable? Although it is certainly too early to tell, financial
linkages, while promising, are difficult to set up and manage, require strong less formal as well as
formal institutions and seldom result in a significant expansion of financial services beyond credit.
Saha, B. & Adhikary, B.K. (2002). “Linkage Strategy Between Formal and
Informal Sector - An Alternative Approach to Microfinance”. Bank Parikrama
Volume XXVII, No. 1.
Abstract: Microfinance is considered to be a productive financial tool to reach the poor people and
to cater to their financial need. However, in the least decade experience shows that the banks with
traditional individualistic techniques have not only failed to increase outreach substantially full also
proved their incapability of reducing interest rate charged by the informal money lenders. Hence, a
linkage strategy between the formal and the informal sector for microfinacing can be viewed as
one of the alternative attractive financial tools in creating a viable rural banking structure. In this
context different modes, extent and performance of existing linkages schemes (among bank,
nongovernment organizations and informal lenders) for the matter of rural development have been
examined in this paper. The paper also attempts to survey the experience of some banks of South
Asia that have undertaken linkage programs successfully. At the end of the paper some
recommendations have been formulated which may contribute in the future course of linkage
strategies of our banks.
Seibel, H.D. & Marx, M.T. (1967). “Dual Financial Markets in Africa: Case Studies
of Linkages between Informal and Formal Financial Institutions”. Saarbrücken,
Breitenbach.
Seibel, H.D. (1987). "The Role of Informal and Formal Financial Institutions"
Interlink Newsletter of the ASEAN Association of Planning and Housing, Volume
7, Number 2, June, pp. 2-4
Seibel, H.D. & Parhusip, U. (1992). “Linking Formal and Informal Finance”. in
Adams, Dale W, and Delbert A. Fitchett, “Informal Finance in Low-Income
Countries”. Colorado: Westview Press, Inc.
Soyibo, A. (1997). “The Informal Financial Sector in Nigeria: Characteristics and
Relationship with the Formal Sector”. Development Policy Review 15 (1), 5–22.
Srinivas, H. (1993). “The Continuum of Informality of Credit: Lessons for Formal
Sector Lending”. Paper presented at the 2nd Symposium on Housing for the
Urban Poor, 11-14 April, 1994, Birmingham, UK.
194
Srivastava, P. (1992), "Are Formal and Informal Credit Markets in India
Interlinked?" Economic and Political Weekly, Volume 27, Number 41, pp. 22412245.
Yaron, J. & Benjamin, M. (1997). “Formal-informal sector interaction in rural
credit markets”. Finance and Development 34, no. 4: 40-43.
Abstract: The paper argues that many developing countries have tried to spur income growth and
reduce poverty in rural areas by making low-interest loans to farmers. The results, it suggests,
have been disappointing. A broader approach emphasizing policy and legal reforms and savings
mobilization has been more successful. Issues discussed are: challenges for rural finance (the
macroeconomic environment, sectoral policies, financial market rigidities, legal and regulatory
barriers); the traditional approach; a new approach; a new environment; government
interventions (when to intervene? how to intervene? targeting, designing successful rural financial
intermediaries); assessing performance; and a successful case study of Bank Rakyat Indonesia's
Unit Desa, which has focused on innovative operating policies and autonomy, low cost delivery, a
high-quality portfolio, substantial spreads, and self-sufficiency.
Zeller, M. (1994). “Determinants of credit rationing: A study of informal lenders
and formal credit groups in Madagascar”. World Development, Volume 22, Issue
12, December 1994, Pages 1895-1907.
Abstract: Previous research on the determinants of credit rationing focused exclusively on the
behavior of formal lenders who contract directly with an individual borrower. Based on survey data
from Madagascar, this paper presents an analysis of credit rationing by informal lenders and by
members of community-based groups that allocate formal group loans among themselves. The
results show that group members are able to obtain and to use locally available information about
the applicant's creditworthiness in much the same way as informal lenders do. Both types of
lenders use the applicant's debt-servicing obligations and income as the main criteria for credit
rationing. This paper therefore empirically confirms theoretical arguments that community-based
groups have an information advantage over distant formal bank agents.
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Other Topics:
Adams, D.W. (1998). “The Decline in Debt Directing: An Unfinished Agenda”.
Paper presented at the Second Annual Seminar on New Development Finance,
Goethe University of Frankfurt, 2125 September.
Ahmed, S.M.; Chowdhury, M. & Bhuiya, A. (2001). “Micro-Credit and Emotional
Well-Being: Experience of Poor Rural Women from Matlab, Bangladesh”. World
Development, Volume 29, Issue 11, November 2001, Pages 1957-1966.
Ahmed, S.S. (2005). “Delivery Mechanisms of Cash Transfer Programs to the
Poor in Bangladesh”. Washington, D.C.: World Bank, May.
Abstract: The Constitution of Bangladesh recognizes food and education as the fundamental rights
of its citizen and the state is responsible to secure these rights. Bangladesh is a signatory to the
United Nations Declaration on the Right to Development. In achieving these basic human rights
and social targets, Bangladesh has a comprehensive long term approach despite being ridden by
problems of high population density, low resource base and high incidence of natural calamities.
These targets have been envisioned from the perspective of poverty alleviation and social
development. In the light of this perception, the government has taken some major social safety
net programs where the individual citizen is incapable of overcoming the economic and social
poverty independently. A host of safety net programs target women, children and the vulnerable.
Generally, the Income Generation Vulnerable Group Development (IGVDG), the Primary Education
Scholarship Program (PESP) and the Rural Maintenance program (RMP), operate in the rural areas
where majority of the poor live. These programs deliver a verity of opportunities. Some of these
programs deliver food while others deliver cash. Benefits are either delivered without any visible
return made by the beneficiaries or with some quantifiable outputs generated by the beneficiaries.
A list of ongoing major program, where government delivers benefit to the beneficiary, is
presented in Table 1.1 below. The various systems used present different cost and logistical
implications. The use of the banking system for delivery of cash benefit transfers, for example,
raises some concerns. First, it is possible that banking facilities are not available or easily
accessible in all the areas, especially for the targeted beneficiaries. Second, poor people, in
general, do not use the banking system or they may have limited access to it. They may not hold
bank accounts because they do not have the money to pay for the fees involved in maintaining
them. This means that the program or the beneficiaries have to pay for those services and thus
reducing the amount of transfers that reach the intended beneficiaries. Third, illiterate people
might have problems using the systems and might not be able to fully understand the meaning of
the transactions. The purpose of this study is to carry out an analysis of the practical issues and
the financial costs relative to the transfer of cash benefits from source to recipients. In particular
we would like to find out what is the cost effective way of transferring funds to the beneficiaries.
We are interested in the comparison of alternative delivery mechanisms in terms of their efficiency
and effectiveness under different conditions and to explore the possible uses of new technologies.
Ashe, J. (1985), "Extending Credit and Technical Assistence to the Smallest
Enterprises" in Ray Brompley [eds], Planning for Small Enterprises in the Thrid
World. Oxford: Pergamon Press, pp. 277-247.
Barua, D.C. (1998). “The Grameen Strategy to Combat the Flood of 1998”.
Paper presented at the SEEP Network 1998 Annual Meeting, Washington DC, 2830 October.
Bhargava, P. (1995). “The role of promotional organizations in the non-farm
sector”. Small Enterprise Development, Volume 6, Number 2, June 1995, pp. 3843(6).
Abstract: In densely populated countries like India, the capacity of agriculture to provide more
employment is limited. The generation of small non-farm businesses in rural areas is thus seen as
of crucial importance for boosting the economy and preventing migration to towns. This article
argues that promotional organizations have an important role to play in supporting small rural
enterprises in the non-farm sector. It identifies the disparate environments, the diverse human
resources and the kinds of constraints faced by these organizations in building enterprises.
196
Promotional agencies are classified into two groups - market-orientated agencies and capabilitybuilding organizations - and the strengths of each group identified for the entrepreneur involved.
Buttari, J.J. (1995). “Subsidized Credit Programmes: The Theory, the Record,
the Alternatives”. USAID Evaluation Special Study No. 75. Center for
Development Information and Evaluation. Washington, D.C: U.S. Agency for
International Development, June.
Devereux, S. (2001). “Livelihood Insecurity and Social Protection: A Reemerging Issue in Rural Development”. Development Policy Review 19 (4), 507–
519.
Abstract: Risk and vulnerability have been rediscovered as key features of rural livelihoods and
poverty, and are currently a focus of policy attention. The poor themselves try to manage
uncertainty using a variety of ex-ante and ex-post risk management strategies, and through
community support systems, but these are both fragile and economically damaging. State
interventions working through food, labor or credit markets have proved expensive and
unsustainable in the past, though encouraging and innovative institutional partnerships are
emerging. This article argues that the way forward lies in new approaches to social protection
which underpin production as well as consumption: new thinking recognizes the food security and
livelihood-protecting functions of public interventions (such as fertilizer and seed subsidies) which
were previously dismissed as 'market-distorting'.
Caprio, G. & Vittas, D. (1995). "Financial History: Lessons of the Past for
Reformers of the Present". World Bank Policy Research Working Paper No. 1535.
Abstract: The environment in which financial institutions operate has changed greatly, but the
history of financial development offers important lessons for today. Among the lessons financial
history
offers:
Macroeconomic stability - low inflation and sound public finance - is important for creating the
right incentives for banks and for facilitating the development of securities markets. High inflation
and large fiscal deficits distort economic behavior in favor of short-term speculative projects and
discourage the long-term investment projects conducive to sustainable economic development.
Central bank independence may contribute to economic stability. One way to increase it is by
lengthening the term of central bank governors. There must be incentives for bank owners to
behave prudently - a requirement that they have capital commensurate with the risks they
assume, for example. Unlimited liability and double liability limits may be less feasible now than in
the past, but banks in developing countries that face higher risks should maintain higher capital
ratios than banks in the more advanced OECD countries. Effective supervision is also essential.
Banks run into solvency problems because they fail to diversify - often because of regulatory
(especially geographic) restrictions, but also because of excessive connected lending or genuine
mistakes. Regulators must ensure that banks diversify their risks, which means ending geographic
or sectoral restrictions (including prohibitions against holding foreign assets) and restricting
connected lending. Developing effective supervision (to ensure meaningful and effective
compliance with prudential rules) is difficult and time-consuming but essential. The difficulty of
supervising universal banks and financial conglomerates is an argument used against them in
developing countries. But universal banks may generate efficiency gains as they overcome the
problems of inadequate reliable public information on industrial and commercial companies.
Holding small equity stakes and being involved in corporate governance may be productive. The
risk of overlending to related firms is likely to be small when banks hold small stakes in industrial
firms; it is high when firms control banks. Pension funds and other institutional investors have
grown in importance in many countries over the past thirty years or so, because of longer life
spans and longer retirement. These funds started as labor market institutions and personnel
management tools, but have become important financial intermediaries. Pension funds offer
developing countries an alternative both for restructuring their public finances and for promoting
their capital markets. Pension funds can play the role that thrift deposit institutions - such as
savings banks, credit cooperatives, and building societies - played in developed countries in the
nineteenth century. But thrift institutions can still contribute to financial and economic
development by promoting thrift and facilitating credit in rural areas and among low-income
groups. They will contribute more if they involve a three-tier structure that combines the benefits
of local involvement and monitoring with centralized auditing and supervision.
CARE Bangladesh. (1998). “Effects of Flood ’98 on Livelihood of Poor Participants
and Savings and Credit Programs of 24 Partner NGOs of Income Project”.
Dhaka: CARE.
197
CGAP. (2004). “How donors can help build pro-poor financial systems”. Donor
Briefs No. 17.
Abstract: This brief outlines a framework for donors to follow when applying a financial systems
approach to their activities in the field of microfinance. It emphasises the benefits of collaboration
and analyses the characteristics of certain types of interventions with regard to their suitability for
different types of donors. The brief is illustrated by the example of how DFID, CIDA, Sida and RNE
are joining forces to fund pro-poor finance in Tanzania and ends with a set of emerging principles
to improve the effectiveness of donor support for building better financial systems.
CGAP. (2005). “The Market for Foreign Investment
Opportunities and Challenges”. Focus Note No. 30.
in
Microfinance:
Abstract: Many microfinance institutions in developing and transition economies receive foreign
funding. This Focus Note looks at these "foreign investors" and the demand for their services. It
presents a view of the market and addresses key questions, including How much foreign
investment in MFIs is really private? How much of this investment is really commercial? Where is
the investment being placed, in terms of region, number, and type of MFIs? Are investors
competing to invest in MFIs? As MFIs grow and absorb more funding, what is the likely role of
foreign investment compared with domestic sources? Does foreign debt create inappropriate
currency risks for MFIs? And what practical lessons emerge from this analysis?
Chaves, R.A. & Gonzelez-Vega, C. (1992). “Principles of Regulation and
Prudential Supervision: should they be different for microenterprise finance
organisations?” Ohio State University.
Chowdhury, O.H., Khandker, S.R., Millimet, D.L. & Pitt, M. (2003). "Credit
Programs for the Poor and the Health Status of Children in Rural Bangladesh”.
International Economic Review, Vol. 44, No. 1, pp. 87-118.
Abstract: The impact of participation in group-based credit programs, by gender of participant, on
the health status of children by gender in rural Bangladesh is investigated. These credit programs
are well suited to studies of how gender-specific resources alter intra-household allocations
because they induce differential participation by gender. Women's credit is found to have a large
and statistically significant impact on two of three measures of the healthiness of both boy and girl
children. Credit provided to men has no statistically significant impact and the null hypothesis of
equal credit effects by gender of participant is rejected.
Churchill, C. (Editor).
Compendium”. ILO.
(2006).
“Protecting
the
Poor
-
A
Microinsurance
Abstract: he book notes upfront that by helping low-income households manage risk,
microinsurance can assist them to maintain a sense of financial confidence even in the face of
significant vulnerability. It brings together the latest thinking of leading academics, actuaries, and
insurance and development professionals in the microinsurance field to offer a practical, wideranging resource which provides a thorough overview of the subject to date. The book allows
readers to benefit from the lessons learned from a project launched by the CGAP Working Group
on Microinsurance analysing operations around the world. It is aimed at insurance professionals,
practitioners and anyone involved with offering insurance to low-income persons, this volume
covers the many aspects of microinsurance in detail including product design, marketing, premium
collection and governance. It also discusses the various institutional arrangements available for
delivery such as the community-based approach, insurance companies owned by networks of
savings and credit cooperatives and microfinance institutions. The roles of key stakeholders are
also explored and the book offers insightful strategies for achieving the right balance between
coverage, costs and price. This book is organized into six parts. The first part, Principles and
Practices, defines microinsurance, provides insights into the risk-management needs of lowincome households and explains the critical social protection function of microinsurance. Part 2
summarizes lessons about specific types of products, namely health insurance, long-term life
insurance and short-term insurance linked to savings and credit products. This part also explores
the adaptation of insurance products to address the characteristics of women and children. The
third part of the book explores microinsurance operations in detail. It includes chapters on product
design, marketing, premium collection, claims, pricing, financial and risk management,
governance, organizational development and loss control. It concludes with a chapter on
benchmarking that examines performance ratios of the microinsurance schemes. Microinsurance
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can be delivered through a variety of institutional arrangements. Part 4 examines these
arrangements to analyse the conditions in which one might be preferable to the others. These
chapters consider the partner-agent model, the community-based approach, insurance companies
owned by networks of savings and credit cooperatives, retailers as distribution channels, and
microfinance institutions. One chapter analyses the advantages, disadvantages and conflicts of
interests of various organizational arrangements for delivering health insurance. Part 5 assesses
the roles of key stakeholders, including donors, regulators, governments, insurers and reinsurers,
and technical assistance providers. The book concludes with Part 6, which summarizes the
strategies needed to achieve the right balance between coverage, costs and price, and provides an
outlook on future developments in microinsurance.
Clark, H. with input from CGAP staff. (2003). “Credit Components”. CGAP Donor
Brief No. 10. Washington, D.C.: CGAP, February.
Copestake, J.; Greely, M.; Johnson, S.; Kabeer, N. & Simanowitz, A. (2005).
“Money with a Mission Volume 1: Microfinance and Poverty Reduction”.
Warwickshire, UK: ITDG Publishing.
Dessy, S. & Ewoudou, J. (2006). "Microfinance and Female Empowerment".
Cahier de Reserche Working Paper No. 06-03.
Abstract: In the informal economy of developing countries, female entrepreneurs face a
comparative disadvantage for operating high-productivity activities, owing to the prevalence of
patriarchal forms of business regulations. Yet, for microfinance institutions (MFIs) to succeed in
enhancing female empowerment, increased access to credit must enable female entrepreneurs to
tap into the range of high-productivity activities. So when the costs of legality are too high in
developing countries, and the informal economy becomes the only affordable venue for operating
a business venture, this paper shows that access to microfinance services becomes only
necessary, but not sufficient for female empowerment. Based upon a game-theoretic model of
activity choices by ex ante homogenous women, we argue that conditioning well-trained women's
access to credit to the adoption of high-productivity activities may enable MFIs to induce the
emergence of networks of female entrepreneurs large enough to mitigate patriarchal practices that
raise the costs of operating such activities in the informal economy.
DFID. (2004). “The Importance of Financial Sector Development for Growth and
Poverty Reduction”.
Abstract: This DFID working paper notes that it is now widely accepted that the private sector
must be the engine of growth, and that governments must work to create the right enabling
environment for private sector development. The paper also suggests that by facilitating
transactions and making credit and other financial products available, the financial sector is a
crucial building block for private sector development. It can also play an important role in reducing
risk and vulnerability, and increasing the ability of individuals and households to access basic
services like health and education, thus having a more direct impact on poverty reduction. But the
authors argue that the importance of promoting financial sector development (FSD) has not always
been widely understood. Yet this paper notes there is a great deal of evidence to suggest that FSD
is important for growth and poverty reduction, and that without it development may be held back,
even if other conditions are met. This paper reviews some of the literature, both theoretical and
empirical, on the relationship between financial sector development, growth and poverty reduction
in order to elucidate these linkages and to assess the importance of FSD to development. This
paper, however, does not discuss policy implications or related issues, such as how to eliminate
barriers to financial sector development.
Dickson, J. (1995). “Culturally sustainable rural enterprise development in Papua
New Guinea”. Small Enterprise Development, Volume 6, Number 1, March 1995,
pp. 43-49(7).
Abstract: Enterprise development is typically the transfer of a Western model of business to a
recipient clientele, regardless of the local culture. Cultural issues need to be considered in the
design, delivery and evaluation of development projects, and this research indicates that
enterprise development is no exception. Certain basic business principles, such as profit,
marketing and cash control, need to be adhered to, but for sustainability, those who plan and
implement enterprise promotion programmes must consider these issues in the context of the
cultural norms of the community, and adapt the basic principles. This article describing field work
in Papua New Guinea (PNG) identifies a number of cultural variations to business practice that
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rural business people used in the day-to-day operation of their small rural enterprises. In the past
these practices were identified as bad business practice, or 'the wrong way to do it'; however, this
field research demonstrates that, on the contrary, this may be 'best practice' in the context of a
subsistence community.
Field, M. & Knopp, D. (2003). “Business linkages and producer groups in
Bangladesh – options for rural microenterprise development”. Small Enterprise
Development, Volume 14, Number 4, 10 December 2003, pp. 49-61(13).
Abstract: The difficulties of providing poorer microenterprises with BDS may sometimes be
overcome by encouraging them to form groups and market their produce collectively. This article
describes the experience of the USAID-funded JOBS Project in Bangladesh as it worked with three
groups of microenterprises – the Bogra Handicrafts Association, the Modhupur Pineapple
Association, and the Shafipur and Mirpur footwear producer groups – to improve their market
linkages. Perhaps surprisingly, a greater degree of independence and market strength was
eventually achieved with the pineapple farmers and the shoemakers, for whom the JOBS Project
intervened directly to arrange technical assistance and marketing linkages, than for the handicraft
workers, who received BDS through an NGO/MFI. How these three projects shed light on ideas
about building the market for BDS for microenterprises is discussed.
Fry, M.J. (1980). “Saving, investment, growth and the cost of financial
repression”.World Development, Volume 8, Issue 4, April 1980, Pages 317-327.
Abstract: This paper presents a quantitative estimate of the cost of financial repression in
developing countries. Here, financial repression is interpreted as the technique of holding
institutional interest rates (particularly deposit rates of interest) below their market equilibrium
levels. For a sample of developing countries, saving is found to be affected positively by the real
deposit rate of interest, as is real money demand, where money is defined broadly to include
savings and time deposits. Under disequilibrium interest rate conditions, higher saving which
raises real money demand increases pari passu the real supply of credit. Credit availability is an
important determinant not only of new investment but also of capacity utilization of the entire
capital stock. Hence, the growth rate is itself affected positively by the real deposit rate of interest
through two channels – first, the volume of saving and investment and, second, capacity utilization
of the entire capital stock, i.e. the measured incremental capital/output ratio. Estimates of saving
and growth functions lead to the conclusion that the cost of financial repression appears to be
around half a percetage point in economic growth foregone for every one percentage point by
which the real deposit rate of interest is set below its market equilibrium rate.
Galor, Z. (2005). “Finance and Guarantees in Rural Development”.
Abstract: In this brief paper, Zvi Galor explores the role of guarantees in credit policies and the
potential for cooperation. He observes that the Grameen Bank became famous for the introduction
of mutual guarantees to overcome the lack of security for lending to poor people. However, the
Moshav in Israel relied on the mutual guarantee of its members to obtain credit back in the 1920s.
While mutual guarantees are useful to facilitate access to credit, Mr Galor is of the view that many
other factors are also important to ensure the success of rural investments. For example he
commends the mixed farm approach which spreads employment and cash flow throughout the
year and explains how this effect is enhanced by being part of a cooperative group as in a Moshav.
The group is able to facilitate the movement of funds between members by providing a savings
and credit service. Mr Galor points out that farmers participating in a Moshav were further
benefited by the marketing and input supply services. Thus members received competitive rates of
interest on their savings, competitively priced inputs and good returns on their produce. He argues
that these cooperative benefits would assist development projects today and an emphasis on
credit alone is inadequate.
Gersbach, H. & Wenzelburger, J. (2001). "The Dynamics of Deposit Insurance
and the Consumption Trap". CESifo Working Paper Series No. 509.
Abstract: We investigate a banking system subject to repeated macroeconomic shocks and show
that without deposit rate control, the banking system collapses with certainty. Any initial level of
reserves will delay the collapse but not avoid it. Even without a banking collapse, the economy still
converges to a consumption trap with positive probability. Savings are maximal in the
consumption trap, but are used entirely to pay back obligations of banks. No long-term
investments can be financed and GDP is minimal. We discuss stronger intervention rules that avoid
both a collapse and the consumption trap, confirming that capital requirements are an early
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indicator signaling when intervention may become necessary. Our analysis provides an explanation
why economies which experience a banking crisis may endure long-lasting economic downturns.
Gobezie, G. (2004). “Microfinance Development: Can Impact on Poverty and
Food Insecurity Be Improved Upon?” International Conference on Microfinance
Development in Ethiopia.
Abstract: Development strategies aimed at eradicating poverty now invariably incorporate
microfinance as one of the key elements. Thanks to this increased attention and the quantity of
resources being devoted to it, the outreach of microfinance is expanding very rapidly, despite the
fact that the services are still largely using a one-fits-all modality across all areas and economic
situations. Experience strongly suggests that microfinance indeed has the potential to be one of
the key instruments to fight poverty by positively affecting the house-hold economic portfolio. It
can expand opportunities for enhancing income, improve capabilities in terms of human capital,
improve the copping mechanism against vulnerability in its various features, as well as empower
the disadvantaged; and the impact can occur at enterprise, individual, household and even
community level, largely as a result of enterprise profitability. Yet, the available evidence in
Ethiopia suggests little progress has been made. According to the author microfinance is still
largely financing agricultural activities, little served with modern technology, and very few nonagricultural activities apart from trading. Individual enterprises are expanding very slowly, if at all.
After being long time clients of the MFI, and after taking 8-9 consecutive loan cycles, the
absorptive capacity and the loan size taken by an individual enterprise is hardly different from
what it was when the clients joined the MFI afresh eight-nine years back. Micro-saving, which is
proving elsewhere to be as important, if not more important, than microcredit services in terms of
guarding the poor against vulnerability, seems to be given little accord, even by the microfinance
service providers themselves. The number of voluntary savers in the Amhara region is quoted as
being 80,000 which is a very small proportion of the rural population of 3 million households. The
author believes that women are not enjoying the full benefit of microfinance services although they
primarily target them. The programmes are implicitly or explicitly based on the assumption that
rural women are conversant with non-farm income-generating activities and have sufficient time to
expand traditional or start new ones, which is clearly often not the case. Many loans given to
women are actually utilized by men. The author concludes that microfinance is not a sufficient
instrument for reducing poverty in areas like that of the Amhara region. For it to be effective, the
marketing situation, the infrastructure, particularly the road net-work, the skill and risk aversion
behaviour, particularly that of women, and integration of the whole service with other sectors
requires immediate attention.
Gobezie, G. (2006). “Gender, Poverty and Micro-enterprise Services in Ethiopia:
Why Only Few Women are Joining?” National Fair – Women’s Empowerment in
the New Millennium.
Abstract: This paper examines the need for, and the success of, micro-enterprise programs in
Ethiopia, with a special focus on their outreach to women. The paper discusses the role that microenterprise can play in alleviating poverty in Ethiopia, reasons why micro-enterprises target
women, and the relationship between empowerment, resources, agency and achievements. It also
describes the features of the “group guarantee-lending model” and examines whether the program
has achieved the empowerment objective and successfully extended microfinance to poor women
as well as looking at the pros and cons of the group-lending methodology.The report finds the
impediments to women accessing the program include self-selection of group members that leads
to the exclusion of the very poor and unfavourable factors (such as terms and conditions, loan
size, low number of female loan officers, lack of business development services support, aversion
to risk, and shortage of time). The paper states that microfinance helps alleviate poverty by
enhancing human capital, reducing vulnerability, and providing savings and insurance services and
emergency loans. In particular it lists the following positive features of the “self-help approach” –
they are savings-based, the pride of ownership and autonomy, the integrated services of finance
and business development, economies of scale, and sustainability. The paper concludes that for
micro-enterprise services to be successful in poorer areas, there is a need for improvement in rural
infrastructure and education about microfinance.
Gonzalez-Vega, C. (1997). “The Challenges of Transferring the New Lending
Technologies to Reach the Poor from the Urban to the Rural Areas: Questions
from Theory, Lessons from Microfinance Best Practice”. paper presented at the
XXIII Meetings of the International Agricultural Economics Association,
Sacramento, California.
201
Guiso, L.; Sapienza, P. & Zingales, L. (2000). "The Role of Social Capital in
Financial Development". NBER Working Paper No. W7563.
Abstract: To identify the effect of social capital on financial development, we exploit the wellknown differences in social capital and trust (Banfield (1958), Putnam (1993)) across different
parts of Italy, using microeconomic data on households and firms. In areas of the country with
high levels of social trust, households invest less in cash and more in stock, use more checks, have
higher access to institutional credit, and make less use of informal credit. In these areas, firms
also have more access to credit and are more likely to have multiple shareholders. The effect of
trust is stronger where legal enforcement is weaker and among less-educated people. The
behavior of movers is mainly affected by the level of trust of the environment where they live, but
a significant fraction of the effect is also due to the level of trust prevailing in the province where
they grew up.
Gupta, A. & Agarwal, R. (2003) "'The Consumer Financing Business in India' Building Blocks for the Future".
Abstract: In view of this changing landscape, we look at the three major drivers of growth in
consumer finance: auto finance, housing finance and consumer durable finance. We discuss the
trends in each of these areas as well as the shortcomings which are slowing down growth. We
present some of the innovative product ideas which have appeared in the market recently and
others which have the potential and can pick up provided adequate attention is paid. These include
customer financing by large retail outlets, range of credit card offerings, innovations in education
finance, rural finance, etc. The role of risk management has also been discussed as far as
containing delinquencies and losses in repayment of loans are concerned. The mortgage portfolio
performance will get affected by a sharp drop in real estate prices, drop in rents, changes in the
tax laws removing exemptions for mortgage repayments. The Auto loans portfolio can get affected
by the drop in re-sale values of cars, decrease in car prices, exchange rates, etc. Unsecured
products like personal loans and credit cards can get affected by macro economic factors like
employment rates, inflation, interest rates etc. We therefore provide an overview of the risk
mitigation strategies which are available to lenders and progress made in this direction so far.
Harper, M. (1998) “Profit for the Poor, Cases in Micro-Finance”. ITDG
Publications, London and Oxford and IBH, New Delhi.
Harper, M. (ed.). (2003). “Microfinance:
Challenges”. ITDG Publishing; Samskriti.
Evolution,
Achievements
and
Abstract: This book brings together fourteen articles on microfinance, which were published, in the
Small Enterprise Development Journal between 1990 and 2001. Together these papers illustrate
some of the major developments and changes that have occurred in the field of microfinance over
the years, e.g. the move from enterprise microcredit to household financial services and the move
from ‘charity’ to ‘sustainability’. The collection enables readers to revisit some of the concerns that
still preoccupy practitioners and illustrates that there are still many unanswered questions. The
book is particularly suitable for students and others looking for a wide-ranging introduction to the
subject of microfinance and for national and international policy makers and donors who are
looking for a broad presentation of trends and alternative strategies.
Hashemi, S.M. (1996). “CGAP Focus Note 21: Linking Microfinance and Safety
Net Programs to Include the Poorest: The Case of IGVGD in Bangladesh”.
Washington, D.C.: Consultative Group to Assist the Poor.
Abstract: This paper focuses on the Income Generation for Vulnerable Groups Development
(IGVGD) program. The IGVGD is a collaborative food security intervention jointly led by the
government of Bangladesh, the World Food Program (WFP) and the Bangladesh Rural
Advancement Committee (BRAC), Bangladesh’s largest NGO. Targeted towards destitute rural
Bangladeshi women who have little or no income earning opportunities, the IGVGD program has
provided food grain assistance and savings and credit services to nearly a million participants over
a ten-year period. Two-thirds of these women have graduated from absolute poverty to becoming
microfinance clients, and have not slipped back into requiring governmental handouts.
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Henry, S. (2006). “Good Practice in Business Development Services: How Do We
Enhance Entrepreneurial Skills in MFI Clients?” Ontario, Canada: Alterna
Savings.
Abstract: After working for 10 years in the microfinance arena, both at the Calmeadow Metrofund
and at the Alterna Savings Community Micro Loan Program (both based in Toronto, Ontario,
Canada), it is my belief that it takes more than a loan to help a micro-business succeed and reach
its goals. I believe a combination of financial credit and operational support is crucial to helping
entrepreneurial clients succeed in today’s marketplace, regardless of the location where the microentrepreneur is competing. Any entrepreneur has to have a combination of technical, operational
and strategic skills. The technical skills come with the commitment, creativity, experience and
knowledge they have within their field. The operational skills (including accounting and finance,
business planning, quality control, health and safety regulations, marketing and human resource
management) can often pose a challenge and necessitate support. Finally, strategic skills can take
an entrepreneur from the start-up phase to the next level in business management. Most
entrepreneurs believe a lack of ongoing capital is the reason for stagnation within their businesses.
While this can be an important factor, a lack of continual operational skills support also plays a
strong role in Micro Small Enterprise (MSE) failure, or in MSEs not reaching their growth potential.
In the 1990’s operational skill assistance was provided to microentrepreneurs through Business
Development Service (BDS) organizations, which operated separately from the sources of
financing for MSEs. BDS services were viewed as non-financial and were thought to be less
challenging to deliver than financing, which has capital and other requirements. (BDS services
include management and vocational skill training, consultancy and advisory services, marketing
assistance, access to information, technology development and transfer and business linkage
promotion.) According to the article Bundling Microfinance and Business Development Services1,
there is a growing recognition in the microfinance community that to develop successfully lowincome people need a wider range of integrated financial and non-financial services. A combination
of expanded financial and non-financial services can help an entrepreneur succeed by: building
their self-confidence; increasing their income, productivity, and employment; and ultimately
facilitating the personal growth of the entrepreneur. Through the provision of more integrated
services, microfinance institutions will no doubt benefit from better loan repayment and portfolio
quality, client retention and the increased ability of the entrepreneur to access other financial
products and services. To achieve these results, microfinance institutions need to ensure that the
appropriate support is provided to clients, so they can gain the skills needed to successfully and
continually operate their businesses. This support can be in close partnership with Business
Development Service Organizations or within the microfinance institution itself. The question is:
How do we enhance entrepreneurial skills in microfinance institution clients? This paper will answer
the question by identifying best practices in Business Development Services offered in close
partnership or integrated within microfinance institutions—both in developing and developed world
settings.
Heemskerk, M.; Norton, A. & De Dehn, L. (2004). “Does Public Welfare Crowd
Out Informal Safety Nets? Ethnographic Evidence from Rural Latin America”.
World Development, Volume 32, Issue 6, Pages 941-955.
Abstract: The researchers compare ethnographic data from two neighboring countries––Suriname
and French Guiana––to investigate whether public welfare systems displace informal risk-sharing
arrangements. The results suggest that the informal safety nets of poor rural households are
deficient when shocks are extreme, irreversible, cumulative, and co-variate. Public welfare can
reduce poverty by strengthening informal insurance systems, distributing cash, enabling new risk
management strategies, and promoting human capital development. It remains a challenge for
policy makers to implement welfare systems that cover society members with the lowest levels of
human and social capital, and that minimize adverse consequences of economic change.
IMF. (1998). “Thailand Letter of Intent”. 26 May. Washington DC: IMF.
Jaffee, D. & Russell. T. (1976). "Imperfect Information, Uncertainty, and Credit
Rationing". Quarterly Journal of Economics 90:651-66.
Jaramillo, M.F. (2004). “Leveraging the Impact of
Microfinance Products”. ACCION InSight No. 10, p. 15.
Remittances
through
Abstract: Remittances - money sent from an immigrant to his or her home country - is an
important service for microfinance clients and represents a significant market opportunity for
microfinance institutions. This InSight details the results of ACCION's research to understand the
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motivations of remittance senders and recipients, to explore product enhancements that could help
both senders and recipients meet their financial goals, and to understand the characteristics
important for a remittance delivery system.
Kabeer, N. (2005). “Is Microfinance a “Magic Bullet” for Women’s
Empowerment? – Analysis of Findings from South Asia”. Economic and Political
Weekly.
Abstract: Opinions on the impact of microfinance have been divided between those who see it as a
“magic bullet” for women’s empowerment and others who are dismissive of its abilities as a cureall panacea for development. This paper seeks to examine the empirical evidence on the impact of
microfinance with respect to poverty reduction and empowerment of poor women. The author
argues that the provision of financial services, like the provision of any development resource,
represents a range of possibilities, rather than a predetermined set of outcomes. It notes that
which of these possibilities are realised in practice will be influenced by a host of factors, including
philosophy that governs their delivery, the extent to which they are tailored to the needs and
interests of those they are intended to reach, the nature of the relationships which govern their
delivery and the calibre and commitment of the people who are responsible for their delivery. The
paper is specifically interested in the extent to which access to financial services helps poor women
address their practical daily needs as well as their strategic gender interests and whether the
approach taken makes a difference to these outcomes. It is also suggested that how needs are
addressed may be as critical as which needs are addressed in bringing about the larger structural
transformation embodied in the idea of strategic gender interests. The conclusion proposes the
need for caution in talking about the impact of microfinance, in general, and the need to talk about
the impact the particular organisations have had in particular contexts. However, regardless of the
pace and the extent of the change that they bring about, the review in this paper suggests that
microfinance offers an important and effective means to achieving change on a number of different
fronts, economic, social and perhaps also political. Nevertheless it becomes apparent that access
to financial services does not “automatically” empower poor women and their households. An
intervention is contingent on context, commitment and capacity if this potential is to become a
reality.
Kamal, M.M. (2002). “Managing Microfinance in an Innovative Way”. ASA.
Abstract: This book has been written by the Senior Deputy General Manager of ASA, one of the
most successful microfinance institutions in Bangladesh. ASA's management approach is notable
for the degree of decentralisation practised. Branch managers are delegated the authority and
responsibility to work independently. Simple record-keeping and accounting procedures have been
developed to save time and make the work more cost effective. The innovative methods of ASA
have enabled it to achieve rapid and profitable development.
Karlan, D. (2001). “Microfinance Impact Assessments: The Perils of Using New
Members as a Control Group.” Journal of Microfinance 3 No. 2: 76-85.
Khalily, M.A.B. & Meyer, R.L. (1992). “Factors Influencing the Demand for Rural
Deposits in Bangladesh: A Test for Functional Form”. The Journal of Developing
Areas 26(3): 371-382.
Kula, O.; Downing, J. & Field, M. (2006). “Value chain programmes to integrate
competitiveness, economic growth and poverty reduction”. Small Enterprise
Development, Volume 17, Number 2, June 2006, pp. 23-35(13).
Abstract: Identifying particular value chains that have the potential to compete globally should
boost output and incomes. The challenge is to achieve this in value chains incorporating large
numbers of small firms and microenterprises, and who are also in a position to benefit. This paper
offers a step-by-step practical guide to intervention design for achieving competitiveness that
benefits the poor. First industries are selected with potential for competitiveness, then a value
chain analysis is carried out. A strategy is developed to improve competitiveness and achieve an
equitable distribution of benefits, and an action plan is devised to achieve this strategy. Finally a
system of performance monitoring and impact assessment is needed to evaluate the effectiveness
of interventions.
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Kumar, A. et al. (1997). “China’s Nonbank Financial Institutions”. Paper No. 358.
Washington DC: World Bank.
Lapenu, C. (2000). “Current State of Development and Prospects for
Microfinance Institutions”. Rural Financial Policies for Food Security of the Poor.
Policy Brief No. 5.
Abstract: The database compiled by IFPRI (see policy brief on microfinance institutions [MFIs] in
Africa, Asia, and Latin America) counts almost 1,500 microfinance institutions (688 in Indonesia
and 790 in other countries) supported by international organizations in 85 developing countries.
They reach 54 million members: 44 million of them save, and 23 million of them borrow. The total
volume of outstanding credit stands at $18 billion and the total savings volume stands at $13
billion, or 72 percent of the volume of the outstanding loans. MFIs operated out of at least 46,000
branches and employed around 175,000 persons. Analyzing this world of mushrooming MFIs
canprovide fresh insights on potential service outreach and the overall role of MFIs in developing
countries.
Levin, M.D. (1981). “Labor, Savings and Credit in a Nigerian Village.”
Symposium on Traditional Cooperation. I.U.A.E.S. Intercongress, Amsterdam,
mimeo.
Lewis, D.J. (1996). “Understanding rural entrepreneurship in a Bangladesh
village — individuals, roles or structures?” Small Enterprise Development,
Volume 7, Number 4, December 1996, pp. 22-31(10).
Abstract: Despite the centrality of small enterprise development to current development practice
among donors and NGOs, the concept of entrepreneurship has only rarely been examined since
the heyday of modernization theory. Moving beyond the emphasis on key individuals and special
qualities and instead focusing on ideas about structure and context, we can use the concept to
understand how people gain access to new non-cultivating roles in agriculture in rural Bangladesh.
Processes of technological change under privatization and structural adjustment have created new
opportunities leading to the creation of new forms of technology-based enterprise in rural areas.
These need not always be captured by local élites. For NGOs and other development agencies
there may be new openings for innovative support to enterprise efforts by the poor.
Lipton, M. & Lipton, Merle. (1993). “Creating rural livelihoods: Some lessons for
South Africa from experience elsewhere”. World Development, Volume 21, Issue
9, September 1993, Pages 1515-1548.
Abstract: A development path for South Africa that will create jobs and reduce poverty must
include the encouragement of greater labor intensity in agriculture, especially of smallholder
farming, which was suppressed under apartheid. There is, however, widespread skepticism — on
both the left and the right — about the prospects for more labor-intensive farming. But this
skepticism is called into question by both theory and evidence of the advantages of small-scale
production in certain products and circumstances; there are now numerous examples of this in
many parts of the world. The paper discusses the preconditions for the development of such
farming in South Africa, including land reform and the need to reorient investment and supporting
economic and technical services (research, training, marketing, credit) from the privileged, largescale “white” farms to the undercapitalized and neglected black smallholders.
Mayoux, L. (2001). “Micro-finance and the empowerment of women: a review of
the key issues”. Microsave-Africa.
Abstract: Looks at the links between micro-finance and women's empowerment within the context
of the debate about gender mainstreaming. The paper is based on research by the author and
secondary source material. 15 case studies form the main basis of the arguments. The paper
concludes that women's empowerment needs to be an integral part of policies. Empowerment
cannot be assumed to be an automatic outcome of micro-finance programmes, whether designed
for financial sustainability or poverty targeting. More research and innovation on conditions of
micro-finance delivery is needed. The paper finds that cost-effective ways of integrating microfinance with other empowerment interventions, including group development and complementary
services are still lacking. Unless empowerment is an integral part of the planning process, the
rapid expansion of micro-finance is unlikely to make more than a limited contribution to
empowerment.
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McCord, M.J. (2003). “The Lure of Microinsurance: Why MFI’s should Work with
Insurers”. Microinsurance Centre Briefing Note #1.
Abstract: This paper is the first in the MicroInsurance Centre Briefing Notes series. It presents an
arguement advocating that MFIs intending to develop insurance products beyond basic credit life
should work as a partner with a regulated insurer.
Meyer, R.L. (2001). “Microfinance, Poverty Alleviation, and Improving Food
Security: Implications for India”. In Ratan Lal (ed.) Food Security and
Environmental Quality, CRC Press LLC, Boca Raton, FL.
Abstract: Analysts are becoming increasingly aware that microfinance can play multiple roles in
reducing poverty and improving food security for poor people. This chapter discusses these roles
and applies them to India. It begins by summarizing the changes in perceptions about poverty
reduction that have occurred during the past couple of decades. Then there is a brief discussion of
the relationship between finance and food security. The following section considers microfinance as
a “win-win” proposition in the provision of financial services. This is followed by a discussion of
microfinance in India, noting important strengths and weaknesses of current policies and
programs. The concluding section outlines ways in which microfinance could be strengthened to
improve its contribution to poverty alleviation and food security in India.
Meyer, R.L. (2001). “Microfinance, Poverty Alleviation, and Improving Food
Security”. Finance for the Poor, Vol. 2, No. 2. ADB.
Abstract: Analysts are increasingly recognizing the multiple roles for microfinance in reducing
poverty and improving food security for poor people in developing countries. These views contrast
with the naïve belief that small loans alone can lift people out of poverty. This note summarizes
some of the new thinking about rural poverty and microfinance.
Meyer, R.L. & Larson, D. (2002). “Issues in Providing Agricultural Services in
Developing Countries” in Promoting Third-World Development and Food
Security, Luther G. Tweeten and Donald McClelland (eds.), Westport: Praeger
Publishers, 1997, pp. 119-151.
Meyer, R.L. (2003). “Microfinance, Poverty Alleviation, and Improving Food
Security: Implications for India”. In Rattan Lal, David Hansen, Norman Uphoff,
and Steven Slack (eds.), Food Security and Environmental Quality in the
Developing World, Boca Raton, Florida: CRC Press LLC, 2003.
Microfinance Consensus Guidelines, (2003). “Definitions of Selected Financial
Terms, Ratios, and Adjustments for Microfinance”.
Abstract: This guideline puts forward standard definitions for selected financial terms, commonly
used and subject to confusion, and suggests a standard method of calculating certain financial
ratios. The consensus on these terms is the result of a project intitated by Damian von
Stauffenberg of MicroRate with Alternative Credit Techniques, CGAP, IDB, M-Cril, MicroBanking
Bulletin, PlaNet Finance, the SEEP Network and SEEP Financial Services Working Group, and
USAID.
Minsky, H.P. (1991). "Financial Crises: Systemic or Idiosyncratic". Working Paper
No. 51.
Abstract: The presentations at this conference are by economists from Academies and economists
who professionally confront real world problems, either in private finance or in public policy. As
economists we accept that the remarks made by Keynes in the closing passage of The General
Theory are true: "... the ideas of economists and political philosophers, both when they are right
and when they are wrong, are more powerful than is commonly understood. Indeed the world is
ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual
influences, are usually the slaves of some defunct economist. .... I am sure the power of vested
interests is vastly exaggerated compared with the gradual encroachment of ideas. ... Soon or late
it is ideas, not vested interests, which are dangerous for good or evil." We like this assertion not
only because it makes us important but also because it makes good sense. The ideas that Keynes
refers to are theories. A theory prior for rational action. A of system behavior is a proposed action,
206
whether by individual agents in households or firms, a bank, a government agency or a legislative
body is appropriate action only as a theory connects the action to the desired result. Because
some institutions, such as deposit insurance, the savings and loan industry, and a number of the
great private banks, that served the economy well during the first two generations after the great
depression, seem to have broken down, the need to reform and to reconstitute the financial
structure is now on the legislative agenda. As we try to fix the financial system three questions
should be asked of the pushers of a policy proposal: 1. "What is it that is taken to be broke?", 2.
"What theory about proposal?" 3. What are the dire consequences of not fixing that which you
assert is broke? In what follows I will take up three points 1. Two views of the results of the
economic process 2. Systemic and idiosyncratic sources of financial crises 3. Some ideas about the
scope for policy in the present "crisis".
Montiel, P.J. (1990). "The Transmission Mechanism for Monetary Policy in
Developing Countries". IMF Working Paper No. 90/47.
Abstract: In many developing countries the financial system is characterized by the absence of
organized markets for securities and equities, by capital controls, and by legal ceilings on bank
borrowing and lending rates, a situation which gives rise to parallel markets for foreign exchange
and informal loan markets. This paper analyzes how changes in monetary policy instruments (bank
credit, administered interest rates, required reserve ratios, and intervention in the parallel
exchange market) are transmitted to domestic aggregate demand in a financially-repressed
economy. Such an analysis is necessary to understand how the move to a more market-oriented
system would affect the economy in the short run.
Morduch, J. (1998). “Does Microfinance Really Help the Poor? New Evidence
from Flagship Programs in Bangladesh.” Princeton University working paper.
Abstract: The microfinance movement has built on innovations in financial intermediation that
reduce the costs and risks of lending to poor households. Replications of the movement’s flagship,
the Grameen Bank of Bangladesh, have now spread around the world. While programs aim to
bring social and economic benefits to clients, few attempts have been made to quantify benefits
rigorously. This paper draws on a new cross-sectional survey of nearly 1800 households, some of
which are served by the Grameen Bank and two similar programs, and some of which have no
access to programs. Households that are eligible to borrow and have access to the programs do
not have notably higher consumption levels than control households, and, for the most part, their
children are no more likely to be in school. Men also tend to work harder, and women less. More
favorably, relative to controls, households eligible for programs have substantially (and
significantly) lower variation in consumption and labor supply across seasons. The most important
potential impacts are thus associated with the reduction of vulnerability, not of poverty per se. The
consumption-smoothing appears to be driven largely by income-smoothing, not by borrowing and
lending. The evaluation holds lessons for studies of other programs in low-income countries. While
it is common to use fixed effects estimators to control for unobservable variables correlated with
the placement of programs, using fixed effects estimators can exacerbate biases when, as here,
programs target their programs to specific populations within larger communities.
Morduch, J. (1999). “The Role of Subsidies in Microfinance: Evidence from the
Grameen Bank”. Journal of Development Economics, Vol. 60(1), pp. 229-248.
Abstract: The Grameen Bank of Bangladesh has been in the vanguard of the microfinance
movement, showing the potential to alleviate poverty by providing credit to poor households. Part
of this success has been built on subsidies. In 1996, for example, total subsidies evaluated at the
economic opportunity cost of capital amounted to about US$26–30 million. The evidence helps to
explain why institutions like Grameen have not just sprung up on their own as private commercial
ventures, and it underscores the value of openly addressing the costs and benefits of
subsidization. The paper also describes recent difficulties in maintaining high repayment rates.
Morduch, J. & Sharma, M. (2002). "Strengthening Public Safety Nets from the
Bottom Up”. Development Policy Review, Vol. 20, pp. 569-588.
Abstract: Helping to reduce vulnerability poses a new set of challenges for public policy. A starting
point is understanding the ways in which communities and extended families try to cope with
difficulties in the absence of public interventions. Coping mechanisms range from the informal
exchange of transfers and loans to more structured institutions that enable an entire community to
provide protection to its neediest members. This article describes ways of building public safety
nets to complement and extend informal and private institutions. The most effective policies will
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combine transfer systems that are sensitive to existing mechanisms with new institutions for
providing insurance and credit and for generating savings.
Morduch, J. (2004). "Consumption Smoothing Across Space: Tests for VillageLevel Responses to Risk" in Stefan Dercon, ed., Insurance Against Poverty,
Oxford University Press.
Moser, C. & Antezana, O. (2002). “Social Protection in Bolivia: An Assessment in
Terms of the World Bank's Social Protection Framework and the PRSP”.
Development Policy Review 20 (5), 637–656.
Abstract: This article uses the World Bank's conceptual framework to document the nature and
scope of social protection policy and practice in Bolivia. It also assesses the manner in which social
protection issues have been included in the Bolivian Government's Poverty Reduction Strategy
Paper (PRSP). This highlights limitations in the existing framework, and provides the opportunity
to recommend a number of measures that would make it a more comprehensive component of the
PRSP. This is a preliminary review of a highly complex subject, which merits considerable further
attention.
Nagarajan, G. & Gonzalez-Vega, C. (1998). “Evaluation of Apex Institutions: The
Cases of PKSF in Bangladesh and FWWB in India”. Columbus: The Ohio State
University, Paper prepared for CGAP, August.
Abstract: This report is part of a comprehensive research project undertaken by investigators of
the Rural Finance Program at The Ohio State University, in collaboration with the Consultative
Group to Assist the Poorest (CGAP), to examine the rationale for the existence and evaluate the
performance of apex organisations created to promote the development the development of
microfinance. The research effort explores the necessary and sufficient conditions conducive to the
development of sustainable microfinance organisations (MFO's) by deriving lessons from the
experience of existing apex organisations such as the Palli Karma Sahayak Foundation (PKSF) in
Bangladesh. The objective is to offer recommendations to donors and policymakers about
conditions favourable to the successful promotion of microfinance through apex mechanisms
Nagarajan, G. & Brown, W. (2000). “Bangladeshi Experience in Adapting
Financial Services to Cope with Floods: Implications for the Microfinance
Industry”. Bethesda: DAI, papers prepared for USAID under Microenterprise Best
Practices Project, June.
Otero, M. & Rhyne, E. (1994). “The New World of Microenterprise Finance:
Building Healthy Financial Institutions for the Poor”. Connecticut, USA: Kumarian
Press.
Abstract: This book looks at several ideas which have been crucial to the transformation of
microenterprise finance. Chapter 1 (Rhyne and Otero) introduces the major ingredients necessary
for the development of a financial systems approach. In chapter 2, M.S. Robinson looks at the way
savings are the sustaining part of local finance and examines the explosive growth of savings in
Indonesia, made possible by the crafting of convenient, safe and liquid voluntary savings
instruments for the Bank Rakyat Indonesia's unit banking system. Chapter 3 (R.A. Chaves and C.
Gonzalez-Vega), outlines financial sector regulation and supervision into a primer for
microenterprise professionals and addresses how these issues may intersect with the
characteristics of microenterprise finance organizations. Chapter 4 (E.L. Edgcomb and J. Cawley)
develops a framework for thinking through the key institutional challenges microenterprise
development organizations face as they move from their initial planning into implementation,
growth and expansion. In chapter 5, Otero focuses on those institutions that have reached the
takeoff point and need to transform themselves into financial institutions. Rhyne argues, in chapter
6, that evaluations of microenterprise finance programmes should reflect the new financial
systems perspective and lays out an evaluation framework that departs from the traditional
concern with the impact on beneficiaries and advocates a focus on the quality of financial services
and the capacity of institutions to achieve scale and self sufficiency. Part 2 examines several of the
leading methodologies for providing financial services to microenterprises. Chapter 7 (S.
Berenbach and D. Guzman) addresses the solidarity group experience worldwide. In chapter 8,
J.H. Magill examines credit unions, formal-sector alternatives for financing microenterprise
development. Chapter 9 (S.L. Holt) looks at the village bank methodology. In chapter 10, L.R.
Reed and D.R. Befus describe how transformation lending can help microenterprises to become
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small businesses. Part 3 examines case studies of four microenterprise finance institutions
representing Asia, Africa and Latin America. In chapter 11, J.J. Boomgard and K.J. Angell
document the Bank Rakyat Indonesia's Unit Desa system and explain the factors that lead to its
success. Chapter 12 (A.J. Glosser), describes the transformation of PRODEM, a successful
solidarity group programme in Bolivia, into BancoSol, a commercial bank devoted to
microenterprises. Chapter 13 (A. Gomez Alfonso, N. Borton and C. Castello) reviews the evolution
of an NGO using the solidarity group method in Colombia using the ACCION model. In chapter 14,
A.K. Kimanthi Mutua examines the Juhudi Credit System, in Kenya, a modified Grameen Bank
model.
Pitt, M. (1999). “Reply to Jonathan Morduch's "Does Microfinance Really Help the
Poor? New Evidence from Flagship Programs in Bangladesh.” Working Paper,
Brown University.
Abstract: This paper addresses the concerns raised by Jonathan Morduch in his paper “Does
Microfinance Really Help the Poor? New Evidence from Flagship Programs in Bangladesh” about the
methods and results of Mark M. Pitt and Shahidur R. Khandker, “The Impact of Group-Based Credit
Programs on Poor Households in Bangladesh: Does the Gender of Participants Matter?”
Pradhan, R.K. (1989). “On helping small enterprises in developing countries”.
World Development, Volume 17, Issue 1, January 1989, Pages 157-159.
Abstract: Given the increasing interest in the role that small-scale and informal economic activities
play in the development process, the paper suggests a particular growth strategy not considered in
the typical demand and supply strategies in the past. Referring to those small informal sector
enterprises that employ workers — as distinct from those that “employ” only family members —
the paper suggests giving credit to owners through the workers on certain conditions, as a way of
inducing economic growth with a certain conception of justice. It is felt that “not only will this
provide those at the bottom the prideful sense of feeling independent, it will also discourage a way
of life that has a natural tendency to exploit those in an even more unfavorable position.”
Rahman, Atiqur. & Westley, J. (2001). “The Challenge of Ending Rural Poverty”.
Development Policy Review 19 (4), 553–562.
Abstract: IFAD believes that the only way to reach the international poverty reduction target is to
focus on rural development: in the early stages, with a strong focus on the production of food
staples on small farms; in later stages, with more attention to commercial crops and the non-farm
sector (itself strongly linked to agriculture). The key interventions are: better access for the poor
to assets, especially land, water and human capital; improved technology, both 'old' and 'new';
better access to markets; and reform of institutions through decentralisation and devolution - all
designed to achieve rapid reduction of poverty, through employment intensity and the exploitation
of local linkages with agriculture. IFAD's approach and experience lay particular stress on
supporting women and minorities.
Rahman, R.I. (1998). “Hardcore Poor and NGO
Bangladesh Institute of Development Studies, May.
Intervention”.
mimeo,
Ravallion, M. (2002). “An Automatic Safety Net?” Finance and development,
June 2002, Volume 39, Number 2.
Abstract: A series of World Bank case studies suggests that the poor bear the brunt of government
spending cuts. Better safety nets that can provide more automatic protection are needed.
Reardon, T. et al. (1998). “Diversification of Household Incomes into Nonfarm
Sources: Patterns, Determinants, and Effects”. Paper presented at the
International Food Policy Research Institute Conference on Strategies for
Stimulating Growth of the Rural Nonfarm Economy in Developing Countries, Arlie
House, Virginia.
Abstract: This chapter had several important conclusions for the RNF development debate. (1) RNF
income diversification is very important in the overall income of rural households, with rough
averages of 42%, 40%, and 32% in household incomes in Africa, Asia, and Latin America. (2) The
composition of RNF income diversification varies greatly over regions (with RNF activities
corresponding to 1st stage and transition-stage rural industrialization in much of Africa, South
209
Asia, and Latin America, and 2nd stage rural industrialization in much of East Asia. The importance
of agriculture-links declines and rural-urban links increase as one goes from the first to second
stage). Within regions, off-farm income is more migration oriented in poor agroclimatic zones (for
risk management), and RNF more linked to agriculture in favorable agroclimatic zones (for income
raising). Households with better access to education and infrastructure tend to be more able to
diversify, and with more own-wealth sources more able to invest in the more capital-intensive and
remunerative RNF activities. (3) This emphasizes the importance of agricultural policy and
development in successful RNF income diversification in 1st stage and transition stage rural
industrializations. The RNF employment promotion debate tends to have a major gap with respect
to 'meso policies' such as agriculturalc, which needs to be addressed ( for details see Reardon et
al. 1998a). That linkage means that is difficult to spur nonfarm employment without
simultaneously addressing the problems of smallholder farmers, and vice versa, that creating the
conditions for smallholder development will require overall rural development emphasizing
development of the off-farm components of the rural economy. (4) However, the evidence shows
that we should be quite worried about the poor's ability to overcome entry barriers to participate in
RNF activity.
Reynolds, C.W. (1975). “Achieving greater financial independence for Latin
America: A proposal”. World Development, Volume 3, Issues 11-12, NovemberDecember 1975, Pages 839-844.
Abstract: Financial intermediation development in Latin America illustrates the various ways in
which the financial system may influence growth, efficiency, and welfare. Though the financial
repression of earlier years has begun to be alleviated, much of the resulting growth of finance in
Latin America has been concentrated within the countries or between them and the now-developed
regions. Intraregional financial flows have been largely overlooked as an avenue for the increase of
financial savings and of regional control over the mobilization and allocation of financial resources.
This paper proposes the creation of new instruments designed to further the development of
financial intermediation on a regional basis. A Latin American Development Bond programme is
suggested which would increase the level of voluntary financial savings for regional development
purposes and would reduce the present triangulation of credit flows through financial
intermediaries outside of Latin America.
Richardson, D.C. (2000). “Unorthodox microfinance: the seven doctrines of
success”. Microbanking Bulletin ed.Calmeadow.
Abstract: Argues for a radical reform of the orthodox approach of using financial services to
achieve poverty alleviation. prospect of a competitive market with different institutional players.
Many credit unions are skeptical of conventional microfinance lore. Many are now focusing on
commercial viability rather than on outreach. Author offers seven doctrines for achieving poverty
alleviation targets: a) Open Door Massification: serving a wider range of economic groups leads to
better outreach, b) Micro-savings: MFI is less dependent on external funding and has higher
liquidity for on-lending, c) Portfolio diversification: diversifying into work, housing, health,
education, transport and security products. The MFI avoids risk of economic downturns in a single
sector, d) Efficiency: better productivity helps MFIs compete with down-sizing commercial banks.
Larger loans should contribute more to payment of fixed costs. Salary and incentive structures for
staff should be re-evaluated, e) Financial discipline: better management of delinquency, loan-loss
reserves, loan charge-offs, and reserves of capital and liquidity, f) Self governance:
empowerment, matched by checks and balances of economic incentives, financial discipline and
systematic vigilance, and g) Assimilation: poor people should be assimilated into the mainstream
economy by providing them with access to comparable financial products and services.
Rutherford, S. (1994). “SIPs, NGOs and Financial Services: prospects for
financial services for the poor in slum improvement projects”. unpublished report
for ODA’s Urban Poverty Office, Delhi, 1994.
Rutherford, S. (1995). “ASA, the biography of an NGO: empowerment and credit
in rural Bangladesh”. ASA, Dhaka, 1995.
Rutherford, S. (1995). “A Strategy for financial services for the poor”.
unpublished report for ActionAid Vietnam, Hanoi, May.
Rutherford, S. (2000). “The Poor and Their Money”. Oxford University Press,
New Delhi.
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Santomero, A.M. (1997). "Deposit Insurance: Do We Need It and Why?". 97-35.
Abstract: Depository institutions play a crucial role in an economy. They create assets to finance a
portion of government spending, i.e. deficits, and to support private sector expenditures for
everything from plant and equipment to consumer durables. They also and simultaneously serve
as a repository for savings, providing a positive return as well as payment services to liability
holders. However, these two functions create instability in the financial sector, because illiquid
assets are financed by liquid liabilities. For this reason, governments throughout the world have
established a financial safety net to insure the stability and integrity of the financial system. A
central piece of any regulatory structure aimed at ensuring financial stability is the existence of
some sort of deposit insurance structure. However, deposit insurance has its own set of problems.
It encourages: (i) risktaking by insured institutions; (ii) neglect by depositors; (iii) intervention by
regulatory agencies. Each can be explained as a rational response to the existence of government
deposit insurance aimed at the lofty goal of financial stability. Depository institutions are
encouraged to take risk because the costs of financing risky assets are unrelated to the probability
of fault. With the government guarantee, some or all depositors are insured and care little about
the assets their institutions hold or their likelihood of failure. Knowing this, regulators are forced to
take on a more active role. In essence, they act as a proxy for the market in disciplining risk and
encouraging prudence. In the end, the system diverges from its free market counterpart even as it
attempts to obtain a socially desirable end. The problems associated with deposit insurance are
even greater for Europe as it moves closer to financial integration. With continued movement
toward a single currency and a single financial market, the difficulties associated with weighing
and minimizing the cost of deposit insurance to achieve its desirable attributes becomes even
more difficult. This is because the willingness of different societies to absorb the costs of such a
system in order to obtain the benefits of financial stability and the willingness of financial
institutions to bear risk will vary. Therefore, in isolation they would have had different types and
levels of deposit insurance. However, in a united Europe a convergence will be forced upon them.
Where this will all end is still a very open question. But, the potential for discord and financial
dislocation is considerable.
Seibel, H.D. (2006). “The Role of Microfinance in Rural Microenterprise
Development: Results of an Internet Based Discussion Forum”.
Syngenta
Foundation and University of Cologne.
Abstract: Syngenta Foundation for Sustainable Agriculture in Basel, Switzerland, works with rural
communities in semiarid regions with the objective of improving their livelihoods through
sustainable innovation in agriculture. In the context of The Economist’s Survey of Microfinance in
the November 2005 issue, the foundation invited readers to help shape its strategy in support of
the rural micro-enterprise sector by posting their contributions on a website set for that purpose.
To initiate the debate it posted four basic questions: How to link microfinance to rural
entrepreneurs? What would it take to foster sustainable access to microfinance in the rural areas
of developing countries? How can we particularly ensure access by rural women to microcredit?
What other factors are constraining microenterprise in rural areas? This paper puts together the
key results from the contributions made to the discussion.
Sharma, M. (Editor and contributor). (2000). “MicroFinance : a pathway from
poverty”. Washington, DC: IFPRI, USAID.
Abstract: These summaries cover research results from a multicountry research program on rural
finance policies for food security of the poor, 1994—2000.
Sobhan, R. (1991). “Introduction” to Debt Default to the Development Finance
Institutions: The Crisis of State Sponsored Entrepreneurship in Bangladesh,
edited by Rehman Sobhan. Dhaka: University Press Limited. p. 1-9.
Start, D. (2001). “The Rise and fall of the Rural Non-farm Economy: Poverty
Impacts and Policy Options”. Development Policy Review 19 (4), 491–505.
Abstract: The rural non-farm economy (RNFE) is gaining prominence in debates on rural
development. Rural household strategies, and rural economies with them, are often increasingly
diversified. But how much do we know about the RNFE's development and impacts, and about how
to support it effectively? This article suggests that the RNFE goes through distinct stages of
growth, demise and recovery. Understanding these is important in designing policy support.
Several interventions are indicated, but three cautions are noteworthy: policies should be fine-
211
tuned to the stage of rural economic development; the RNFE they target may have variable
impacts, particularly on inequality; and supporting the rural non-farm economy may be an
expensive option, especially if national job creation is the primary objective.
Steel, W.F. & Andah, D. (2003). “Rural and Microfinance Regulation in Ghana:
Implications for Development and Performance of the Industry”. Washington,
D.C.: The World Bank, Africa Region Working Paper Series No. 49.
Abstract: Legislation and regulations governing rural and microfinance institutions (RMFIs) in
Ghana have evolved with the market, both opening up possibilities for new types of institutions
and tightening up to restrain excessive entry and weak performance in the face of inadequate
supervision capacity. The result – though not entirely by conscious design– is several tiers of
different types of RMFIs with a strong savings orientation and a much greater role of licensed
institutions relative to NGOs than is found in many countries. Small unit Rural and Community
Banks (RCBs) are accommodated in the Banking Act; savings and loan companies in the Non-Bank
Financial Institutions (NBFIs) Law; and credit unions under a new law being prepared to recognize
their dual nature as cooperatives and financial institutions. The informal sector is dominated by a
variety of savings-based methodologies, both individual and group. Supervision of a large number
of RMFIs is costly relative to their potential impact on the financial system (about 7% of assets),
and the Bank of Ghana has adopted a number of strategies to cope with its limited supervision
capacity: raising reserve requirement for RCBs to as high as 62%; drastically raising the minimum
capital requirement for NBFIs; andpermitting self-regulation of credit unions by their apex body. It
is currently establishing an Apex Bank to serve the RCBs, link them more effectively to the
commercial banking system, and take the lead in building their capacity and, eventually, in
undertaking front-line supervision. Although the US$2 million minimum capital requirement makes
the S&Ls less accessible for NGO transformation, it has led to introduction of foreign capital. While
the RCBs have had limited outreach, some have effectively partnered with NGOs to introduce
microfinance methodologies such as village banking, and they are now being strengthened as the
backbone for expansion of rural financial services. Linkages also occur between informal savingsbased “susu” institutions and both RCBs and S&Ls. The Bank of Ghana has taken a relatively
laissez-faire position vis-à-vis the informal sector. Liberalization of financial policies in the late
1980s has enabled RMFIs to develop with relatively little interference, and without a clearly
articulated national strategy. Nevertheless, continued high inflation and interest rates (particularly
on Treasury Bills) has limited the incentive for commercial financial institutions to reach out to
smaller, poorer clients (though enabling weak RCBs to improve their capital adequacy with highly
restricted lending).Furthermore, directed, subsidized loans under current government poverty
programs threaten to undermine loan performance and weaken the long-run potential for
developing sound, self-sustaining RMFIs on a significant scale. While Ghana’s approach has yielded
a wide range of RMFIs and products with the potential for substantial outreach to the poor and
sustainability based on savings mobilization, it has also permitted easy entry of institutions with
weak management and internal controls. Ghana’s experience demonstrates the difficulty of striking
the right balance between encouraging entry and innovation on the one hand and establishing
adequate supervision capacity on the other. In several segments – RCBs, credit unions, S&Ls –
Ghanahas gone through a cycle of easy entry, weak performance, tightening up regulations, and
some restructuring (through closing insolvent units, takeovers, or infusion of new investment). The
Bank of Ghana has exercised considerable regulatory forbearance in allowing weak units time to
comply with stricter regulations (or, in the case of the credit unions, to establish a self-regulating
system while awaiting passage of a new law). On the whole, this approach appears to have
succeeded in giving Ghana a very diverse, reasonably robust system of RMFIs, with relatively little
cost in terms of outright failed institutions (and lost deposits) and moderate drain on supervisory
resources. Nevertheless, the system has failed to achieve impressive outreach, especially to the
rural poor, and remains burdened by a number of weak units that the regulatory authorities are
not well equipped to turnaround.
Steel, W.F. & Charitonenko, S. (2003). “Implementing The Bank’s Strategy To
Reach The Rural Poor”. Washington, D.C. Rural Private Sector, Markets, Finance,
and Infrastructure Thematic Group, Report No. 26030, The World Bank.
Abstract: This paper elaborates rural finance aspects of the World Bank’s rural development
strategy, Reaching the Rural Poor, by giving an overview of recent implementation experience,
discussing current issues, and highlighting priorities for the future. The primary objective is to
articulate how the Bank views current best practices in rural finance and attempts to incorporate
them into its operations, as a common frame of reference for policymakers in client countries,
Bank staff, and other donor agencies. In the process, it provides some operational guidance on the
types of instruments suited to different circumstances, although it is not intended as a toolkit for
project design.
212
Taylor, A.M. (1999). "Latin America and Foreign Capital in the Twentieth
Century: Economics, Politics, and Institutional Change". NBER Working Paper
No. W7394.
Abstract: Latin America began the twentieth century as a relatively poor region on the periphery of
the world economy. One cause of a low level of income per person was capital scarcity. Long run
growth via capital deepening requires either the mobilization of domestic capital through savings,
or large inflows of foreign capital. Latin America's capital inflows were large by global standards at
the century's turn, and even up to the 1930s. But after the 1930s, Latin America was not so
favored by foreign capital as compared with other peripheral regions for example, the Asian
economies. The Great Depression is conventionally depicted as a turning point in Latin America for
commercial policy and protectionism, thus marking the onset of import substitution and a long-run
increase in barriers in international goods markets. However, this paper argues that policy
responses in the 1930s, and subsequent decades of relative economic retardation, can be better
understood as the cause and effect of the creation of long-run barriers in international capital
markets. To support this notion, I discuss the quantitative extent of these barriers and their effects
on economic growth. As for causality, I argue that the political economy of institutional changes in
the 1930s in the periphery might be understood in similar terms to those economic historians have
used to discuss the macroeconomic crisis in the core. Such a political-economy model might thus
have universal (rather than core-specific) use. It might predict the 'reactive' and 'passive'
responses by periphery countries to external shocks, and the persistence of such shocks in the
postwar period. In conclusion, I touch on the important implications of these ideas for the current
situation in Latin America, where recent policy reforms aim to undo the last sixty years of isolation
and reintegrate Latin America into the global economy.
Tiscon, G.S. (1985). “The Emergence of Non-Bank Financial Institutions in the
SEACEN Countries”. Staff Papers no. 9, Kuala Lumpur: SEACEN Research and
Training Centre, The South East Asian Central Banks, 32 p.
Tomich, T.P.; Kilby, P. & Johnston, B.F. (1995). “Transforming Agrarian
Economies: Opportunities Seized, Opportunities Missed”. Ithaca: Cornell
University Press.
Abstract: Some developing countries have made striking progress in transforming the structure of
their economies, in raising productivity, and in reducing poverty. But in fifty-eight countries the
majority of the labor force is still primarily dependent on agriculture. These include all of the
poorest developing countries, and their 3.1 billion people account for almost 60 percent of the
world's population. Our goal is to present a comprehensive analysis of the state of the art in
development strategy for these agrarian economies. Identifying important ideas that have
withstood the test of time is central to this task. The relevance of these ideas to any country
depends crucially on its stage of structural transformation. This is what led us to concentrate our
analysis on the largest (and poorest) subset of contemporary developing countries
Udry, C.R. & Conley, T.G. (2004). "Social Networks in Ghana". Yale University
Economic Growth Center Discussion Paper No. 888.
Abstract: In this chapter we examine social networks among farmers in a developing country. We
use detailed data on economic activities and social interactions between people living in four study
villages in Ghana. It is clear that the networks of information, capital and influence that permeate
these communities are shaping economic development in this region. This chapter explores the
determinants of these important economic networks. We first describe the patterns of information,
capital, labor and land transaction connections that are apparent in these villages. We then discuss
the interconnections between the various economic networks. We relate the functional economic
networks to more fundamental social relationships between people in a reduced form analysis.
Finally, we propose an equilibrium model of multi-dimensional network formation that can provide
a foundation for further data collection and empirical research.
USAID. (2000). “USAID microenterprise development briefs : a compilation of
briefs issued from February 1995 through October 1998”. Washington, DC.
213
USAID. (2005). “Value Chain Finance”. RAFI Notes (Rural and Agricultural
Finance Initiative) Issue 2.
Abstract: This brief note is based on "Value Chains and Their Significance for Addressing the Rural
Finance Challenge", microREPORT by Bob Fries and Banu Akin – which can also be downloaded
below. It suggests a value chain is the series of actors and activities needed to bring an
agricultural product from production to the final consumer. Value chain finance then arises when
credit or other financial services flows through the actors along this chain – this may or may not
include support from formal financial institutions. The paper contends that identifying relationships
along the value chain, mitigating constraints, exploiting opportunities for value chain finance, and
exploring how formal financial institutions can enter the equation can improve the overall
effectiveness and efficiency of the value chain. Such interventions, if designed well, can increase
the competitiveness of small producers, a range of agricultural and agribusiness enterprises. This
note aims to provide an overview of the nature and potential of value-chain finance, as well as
some of the lessons learned in using value-chain finance to promote agricultural sector
development. It begins with discussion on value chains, from both a supply and demand
perspective, and how they are financed. Finance is split between direct value chain finance and
indirect value chain finance; and the complimentary nature of the two is also considered. The note
then profiles some common forms of value-chain finance – trader credit, contract
farming/outgrower schemes and warehouse receipt systems – and discusses the advantages and
disadvantages of each. The note ends by highlighting the implications for program design, drawing
on recent experience using value chain analysis in Mozambique.
USAID. (2006). “The Role of Financial Institutions”. RAFI Notes (Rural and
Agricultural Finance Initiative) Issue 3.
Abstract: Farmers, rural residents, and rural businesses historically have had limited or poor
access to financial services because of specific constraints to serving rural and agricultural
markets. To succeed in promoting agricultural enterprise development or, more broadly, rural
development, we must address the inadequacy of financial service in these areas. RAFI Note
#3 reviews the risks and problems that financial institutions face in trying to provide rural and
agricultural financial services, and highlights new approaches and mechanisms to mitigate credit
risk and improve the profitability of rural lending. This issue also discusses the potential for
historically urban-focused microfinance institutions (MFIs) to provide services in rural areas,
including to farmer clients.
Van Greuning, H.; Gallardo, J. & Randhawa, B.K. (1999). “A Framework for
Regulating Microfinance Institutions”. Financial Sector Development Department.
World Bank.
Abstract: Is there a need to regulate microfinance institutions? If so, what activities should be
regulated? Who should regulate them? And what issues are fundamental to the sector's
regulation? The continuum of institutions providing microfinance cannot develop fully without a
regulatory environment conducive to their growth. Without such an environment, fragmentation
and segmentation will continue to inhibit the institutional transformation of microfinance
institutions. Van Greuning, Gallardo, and Randhawa recommend a tiered approach to external
regulation, one that takes into account the different types of microfinance institutions, the
products they offer, and the markets they service. A tiered approach can be useful in designing
regulatory standards that recognize the basic differences in structure of capital, funding, and risks
faced by different kinds of microfinance institutions. The model they develop for a regulatory
framework identifies thresholds of financial intermediation activities, thresholds that trigger the
requirement that an institution satisfy external or mandatory regulatory guidelines. It focuses on
risk-taking activities that must be managed and regulated. They illustrate the usefulness of the
model by practically applying prudential considerations to various categories and values of
financial risk for each of three broad categories of microfinance institution. A transparent, inclusive
framework for regulation will preserve the market specialties of different types of microfinance
institutions-and will promote their ultimate integration into the formal financial system. One
example of the kind of regulation the authors recommend: Require standard registration
documents and procedures-no different from those required of regular corporations-including the
designation of a central government agency with which they should register as corporate entities.
214
Vittas, D. (1997). "The Role of Non-Bank Financial Intermediaries (with
Particular Reference to Egypt)". World Bank Policy Research Working Paper No.
1892.
Abstract: Non-bank financial intermediaries both complement and compete with commercial
banks, forcing them to be more efficient and responsive to customers' needs. Especially, pension
funds and other institutional investors that mobilize large long-term financial resources can act as
countervailing forces to the dominant position of commercial banks. Non-bank financial
intermediaries (NBFIs) comprise a mixed bag of institutions, ranging from leasing, factoring, and
venture capital companies to various types of contractual savings and institutional investors
(pension funds, insurance companies, and mutual funds). The common characteristic of these
institutions is that they mobilize savings and facilitate the financing of different activities, but they
do not accept deposits from the public. NBFIs play an important dual role in the financial system.
They complement the role of commercial banks by filling gaps in their range of services. But they
also compete with commercial banks and force them to be more efficient and responsive to the
needs of their customers. Most NBFIs are also actively involved in the securities markets and in
the mobilization and allocation of long-term financial resources. The state of development of NBFIs
is usually a good indicator of the state of development of the financial system. Vittas focuses on
contractual savings institutions, namely pension funds and life insurance companies, that are by
far the most important NBFIs. He also offers a brief review of the role and growth of other NBFIs,
such as leasing and factoring companies, as well as venture capital companies and mutual funds.
Vittas covers developments in selected countries in different regions of the world. He also
examines the recent growth of NBFIs, especially contractual savings institutions and securities
markets, in Egypt. Vittas discusses the necessary regulatory and other policy reforms for
promoting NBFIs - in particular, the openness to international markets and foreign presence that is
essential for the transfer of skills and technologies. This paper - a product of the Development
Research Group - is part of a larger effort in the group to study non-bank financial intermediation.
World Bank. (1997). “Financial Services for the Rural Poor and Women in India:
Access and Sustainability”. Washington DC.
Yunus, M. (1992). “Grameen Bank - Experiences and Reflections”. Dhaka:
Grameen bank, 23 pp.
Zaman, H. (1999). “Assessing the poverty and vulnerability impact of microcredit in Bangladesh: a case study of BRAC”. Washington, D.C: Office of the
Chief Economist and senior Vice President (DECVP) World Bank.
Abstract: This paper explores the relationship between micro-credit and the reduction of poverty
andvulnerability by focussing on BRAC, one of the largest micro-credit providers in Bangladesh.
The main argument in this paper is that micro-credit contributes to mitigating a number of factors
that contribute to vulnerability, whereas the impact on income-poverty is a function of borrowing
beyond a certain loan threshold and to a certain extent contingent on how poor the household is to
start with. This argument is illustrated by complementing the existing literature with some
empirical analysis of household survey data collected in Bangladesh in 1995. Consumption data
from 1072 households is used to show that the largest effect on poverty arises when a moderatepoor BRAC loanee borrows more than 10000 taka ($200) in cumulative loans. A number of
pathways by which micro-credit can reduce vulnerability, namely by strengthening crisis-coping
mechanisms (the 1998 flood in Bangladesh is used as a case study), building assets and
‘empowering’ women are discussed. Data from 1568 women are used to construct sixteen ‘female
empowerment’ indicators and the empirical analysis that follows suggests that micro- credit has
the greatest effect on female control over assets and also on her knowledge of social issues
controlling for a host of other characteristics.
Zeller, M. (2000). “Product Innovation for the Poor: The Role of Microfinance”.
Rural Financial Policies for Food Security of the Poor: Policy Brief No.3. IFPRI.
Abstract: This policy brief reviews evidence and draws lessons regarding the role of microfinance
for income and consumption smoothing by the poor. It highlights potential areas for product
innovation by the microfinance sector to address the demand for financial services for income and
consumption smoothing.
215
Zeller, M. & Sharma, M. (2000). “Assessing the Relative Poverty Level in Clients
of Microfinance Institutions: An Operational Tool”. Rural Financial Policies for
Food Security of the Poor. Policy Brief No. 10.
Abstract: Many microfinance institutions (MFIs) receive public support. In return for this support,
governments and donors demand MFIs not only become financially sustainable but also reach the
poor, or even the poorest of the poor. Effective evaluation of the achievement of these objectives
requires appraising both the MFI’s financial sustainability and the relative poverty of its clients. In
recent years, several tools have emerged to assist donors in their assessment of the financial
sustainability of MFIs. For example, the Consultative Group to Assist the Poorest (CGAP), which
seeks to promote sustainable microfinance institutions for the poor, disseminates a number of
tools that allow assessing the financial sustainability and other aspects of institutional performance
of MFIs. Currently, no operational tool exists for measuring how well a MFI reaches the poor
through its services. In order to gain more transparency on the depth of poverty outreach, CGAP
supported research at IFPRI during 1999 and 2000 to design and test a simple, low-cost
operational tool to measure the poverty level of MFI clients relative to nonclients. This policy brief
summarizes the main features of the tool, how it can be applied, and what type of results can be
obtained. Another policy brief informs about the results from four test country cases.
Zhixiong, Du.; Quinsin, Mao & Yoichi, Izumida. (2005). “Financing of Rural
Enterprises in China after the Financial Reforms in the 1990s – Results of a Field
Survey in Anhui Province”. Savings and Development, Issue no. 3.
Abstract: How well to finance the small and m edium- size d enterprises (SMEs) is a worldwide
puzzle. The enterprises in rural China, the typical SMEs but contributing much to both the rural
economy and Chinese economy as a whole, are facing difficulties in financing. This paper, with the
background of the three substantial reforms upon the rural financial system occurred in the late
1990s, presents the results of a field survey concerning the rural enterprises' financing situation in
Anhui Province in the Middle China. The paper examines the loan purpose s , self- evaluation on
the accessibility of rural enterprises to various financial institutions. The main findings covers: (1) I
n rural Anhui , the rural SMEs established in the 1990s face serious shortage of working and
investment capital . (2) M ost of the sample enterprises have strong desire s to obtain loans and
show insensitivity to the level of ongoing interest rate of loans. (3) W ith the reform of the
financial system in China and the Asian financial crisis during the 1990s, the rural financial
institutions became cautious to lend money to rural enterprises. The empirical evidence in this
paper indicates that the prominent nature of the Chinese rural financial market after the reforms in
the 1990s can be identified as so-called credit rationing. As the background of this phenomenon,
there might be information gap between financial institutions and rural TVEs, as well as repressive
regulation from the monetary authority.
216
Index by Author
A Abdullah, T., 123
Abed, F.H., 62
ACCION, 21, 27, 77, 137, 157, 159, 161,
203, 209
Acharya, R.P., 163
Adams, D.W., 1, 8, 48, 57, 89, 112, 121,
123, 149, 163, 180, 196
Adams, J.Q., 188
ADB, 2, 25, 32, 33, 37, 52, 57, 85, 88, 89,
102, 109, 112, 124, 139, 140, 149, 173,
182, 206
Adenuga, D.S., 171
Adeyemo, R., 133
Adhikary, B.K., 194
Aforka, C.I., 149
AFRACA, 2, 103, 107
Agabin, M.H., 2, 98, 101, 149
Agarwal, R., 202
Agency for International Development, 16,
18, 24, 33, 44, 84, 89, 106, 123, 134, 197
Agricultural Finance Corporation, 112
Ahmad, A., 148
Ahmed, A.B. Sharfuddin, 27
Ahmed, A.U., 76
Ahmed, M.U., 2
Ahmed, S.M., 196
Ahmed, S.S., 196
Ahmed, Z.U., 57
Ahmmed, I., 108
Ahsan, S.M., 112
Aiyer, C.V., 162
Akin, B., 14
Alam, M., 123
Alamgir, D., 58, 82
Aleem, I., 180
Ali H., 58
Ali, Ahsan, 112, 132
Alicbusan, A.P., 28
ALIDE, 58
Allavi, P., 58
Allen, H., 123, 163, 164
Allen, H.C., 18
Alvarado, J., 2, 50, 108, 112
Amakumar, R.R., 58
Ambec, S., 164
Amimo, O., 124
Amin, R., 58
Ammar, S., 58
Andah, D., 212
Andersen, T.B., 188
Anderson, J., 58
Anderson, S., 164
Andrews, M. Sr., 112
Andrews, M.A, 124
Anita, Abad-Jose., 155
Antezana, O., 208
Anyango, E., 164
Ardener, S., 165
Aredo, D., 165
Argent, N., 113
Arias, D., 3
Aryeetey, E., 124, 149, 161
Ashe, J., 124, 196
Ashraf, N., 180
Asian Productivity Organization., 1, 10, 113
Atieno, R., 188
Atiq R., 153
B BAAC, 53, 54, 67, 89, 94, 95, 97, 101, 102,
125, 128, 172, 176, 182
Bagachwa, M.S.D., 149
Bakht, F., 149
Baland, Jean-Marie,, 164
Banik, A., 149
Bankakademie., 77
Bansal, H., 175
Barbieri, C., 90
Barham, B.L., 185
Barkema, A.D., 59
Barnes, C., 3
Baron, C., 111
Barton, C.G., 165
Barua, B.K., 59
Barua, D.C., 196
Bass, J., 113
Bastiaensen, J., 59, 89
Basu, K., 188
Basu, P., 3
Basu, S., 59
Baydas, M.M., 150
Bayes, A., 58
Bayoumi, T., 131
Bechtel, P.K.H., 3
Becker, S., 58
Bedard, G., 125, 175
Beemsterboer, E., 80
Bell, C., 59, 150
Benjamin, M., 53, 54, 195
Berger, Marguerite., 59
Berkhoff, A., 90
Besley, T., 60, 165, 170
Bhaduri, A., 60
Bhalotra, S., 63
Bhandari, M.C., 113
Bhargava, P., 196
Bhatt, N., 90
Bhatt, V.V., 60, 77
Bhattacharya, D., 168
Bhattacharyya, S., 60
Bhende, M.J., 60
Bhuiya, A., 196
Biais, B., 189
BIDS, 73, 134, 150
Bigsten, A., 150
Binswanger, H.P., 60, 78, 113
Bittencourt, M., 124
Bjønskov, J.C.C., 114
Blanchet, T., 125
Boakye-Dankwa, K., 145
Bolnick, B.R., 146, 180
Bose, P., 188, 189
Boucher, S., 60, 185
Bouman, F.J.A., 3, 90, 125, 150, 165, 166
Boyer, D., 90
Branch, B., 4, 125, 129
Brand, M., 137
Brandt, L., 35, 72
217
Braun, J.V., 55
Braverman, A., 61
Breitschopf, B., 39
Brett, N., 61
Breuer, B., 95
Brown, W., 78, 208
Brundin, I., 166
Brunner, H.W., 188
Buchenau, J., 4, 31, 150
Buchenrieder, G., 4, 19, 127
Buckley, G., 151
Burgess, R., 90
Burkett, P., 4, 135
Burman, S., 165
Burnett, J., 182, 183
BURO, 21, 123, 125, 135
Buttari, J.J., 197
C Callier, P., 166
Calmanti, A., 131
Calomiris, C.W., 166
Campion A., 125
Campos, P., 126
Caprio, G., 197
CARE Bangladesh., 197
Carlton, A., 151
Carpenter, S.B., 189
Carree, M.A., 91
Carroll, C., 126
Carter, M.R., 5, 185
Caselli, F., 61
Catholic Relief Services., 5
Cécile, L., 78
CGAP, 5, 8, 35, 44, 74, 79, 80, 83, 88, 91,
94, 110, 114, 126, 128, 133, 137, 138,
139, 143, 146, 166, 181, 198, 199, 202,
206, 208, 216
Chakrabarti, R., 175
Chalmers, G., 5
Chandavarkar, A.G., 151, 189
Chao-Beroff, R., 6
Charitonenko, S., 6, 54, 91, 212
Charoenpiew, P., 99
Chaudhuri, S., 189, 190, 191, 192
Chaudhury, I., 146
Chavas, J.P., 173
Chaves, R.A., 6, 16, 198
Chen, H.Y., 1
Cheng, E., 61, 62
Cheston, S., 62
Choudhuri, A.H.M., 91
Choudhury, T.A., 91
Chowdhury, A.H.M.N., 6
Chowdhury, A.M.R., 62
Chowdhury, M., 196
Chowdhury, N., 126
Chowdhury, O.H., 198
Chowdhury, P.K., 185
Christen, R.P., 86, 114, 138, 185
Christensen, G., 151
Churchill, C., 80, 198
Clark, H., 199
Clarke, G.R.G., 91
Clercx, L., 39
Clive, B., 188
Coate, S., 165
Coetzee, G., 7, 83, 152
Coffey, E., 115
Cohen, L., 132
Coleman, B.B., 52, 181
Colombet, H.H., 41
Conley, T.G., 213
Conning, J., 7, 62, 184
Conroy, J.D., 91
Co-operation for Development, 91
Cooperative Promotion Department, 185
Copestake, J., 7, 63, 199
Covarrubias, K., 3
Cuevas, C.E., 29, 126, 181, 185, 187
Cull, R., 91
CUNA, 185
D Dalla Pellegrina, L., 181, 183
Daly, J., 2
Daru, P., 80
Dasgupta, S.K., 59
Datta, D, 63
David, C.C., 53
Davis, J.R., 7, 8, 19
Dayesso, T., 8
De Dehn, L., 203
De la Peña, N., 11, 65
De Sahonero, M.C., 163
De Vletter, F., 8
De Waard, J.M., 153
Deaton, A., 126
DeGennaro, R.P., 80
Dejene, A., 185
DeLancey, V., 8
Delbert, A.F., 8, 149
Dellien, H., 182
Demirguc-Kunt, A., 91, 138
Deschamps, Jean-Jacques., 92
Desrochers, M., 92
Dessy, S., 151, 199
Development Finance Forum., 81
Devereux, S., 197
D'Exelle, B., 59
DeYoung, R., 92
DFID, 33, 62, 65, 66, 164, 198, 199
Diagne, A, 8, 9, 63, 64, 191
Diaz, C.P., 84
Dichter, T., 81
Dickson, J., 199
Dommel, H., 43
Donald, G., 48, 152
Dorward, A., 9, 115, 152
Douglas, P., 114
Dowla, A.U., 82
Downing, J., 204
Drabenstott, M., 59
Dressen, R., 93
Dreze, J., 64
Dufhues, T., 9, 127
Dugan, M., 93
Duong, P., 9, 24
Duquet, S., 139
Duval, A., 135, 139
Dwibedi, J.K., 190
Dyer, J., 90, 93
218
E Edelman, M., 10
Egaitsu, F., 10
Egger, P., 93
Elhiraika, A.B., 166
Elser, L., 127
Enjiang, C., 37
Enríquez, L.J., 154
Errunza, V.R., 64
Esguerra, E.F., 152, 191
Evans, A.C., 10, 129
Evans, D.B., 64
Ewoudou, J., 199
F Fafchamps, M., 152
FAO, 13, 34, 39, 44, 58, 103, 115, 116, 117,
145, 173, 183
Farmer, E., 25
Faruqee, R.R., 31, 37, 115, 117
Fatmi, N.E., 110
Feder, G., 65, 115
Feinstein, O., 10
Fernando, N.A., 11, 25, 139, 140, 152, 182
Fidler, P., 162
Fiebig, M., 127, 183
Field, M., 200, 204
Findley, C., 61
Firpo, J., 93
Fischer, I., 9
Fisher, T., 82
Fitchett, D., 94, 128
Fleisig, H.W., 11, 65, 116
Floro, M.S., 191
Fong, M.S., 12
Ford, C., 10, 12
Fraslin, J.H., 185
Fries, B., 116
Fries, R.J., 13, 14
Fry, M.J., 200
Fukui, R., 14
G Gaboury, A., 186
Gaburici, A., 7
Gaiha, R., 65
Gaile, G., 3
Galarza, F., 50, 108, 112
Galarza, R., 2
Gallardo, J., 14, 214
Gallman, D., 100
Galor, Z., 146, 167, 186, 200
Gangopadhyay, S., 182
Garcia M.C., 6
Geertz, C., 167
Germidis, D., 192
Geron, P.S., 15
Gersbach, H., 200
Gerschick, J., 137
Gershon F., 168
Ghate, P.B., 152, 153, 192
Gibson, B., 153
Gideon, O., 18
Giehler, T., 103
Giles. J., 35
Gilesm, J., 72
Gincherman, A., 182
Gine, X., 65
Gingrich, C.D., 167
Global MicroRate Africa., 153
Gobezie, G., 15, 140, 201
Godquin, M., 147
Goetz, A., 65
Goldberg, M., 14
Gonzalez-Vega, C., 6, 16, 17, 71, 83, 94, 98,
140, 182, 184, 201, 208
Goodland, A., 17, 18, 36
Goodwin-Groen, R., 128
Gopalakrishna, C.K., 101
Gore, C., 18
Gosh, A., 153
Graham, D.H., 1, 18, 94, 98, 112, 124, 181
Grant, W.J., 18, 83
Greely, M., 199
Green, C., 78
Griffith, G., 18
Grossmann, H., 20
GTZ, 18, 20, 40, 76, 77, 88, 94, 95, 96, 103,
110, 111, 115, 116, 118, 125, 126, 127,
128, 131, 133, 135, 163, 172, 176, 183
Guasch, J.L., 61
Gugerty, M.K., 167
Guirkinger, C., 60
Guiso, L., 202
Gupta, A., 202
Gupta, M.R., 153, 190, 192
Gupta, R., 65
Gurgand, M., 18
H Haberberger, M.L., 95, 182
Hancock, D., 151
Handa, S., 167
Hannan, M., 65
Hannig, A., 127, 128, 183
Hao, T.K., 153
Haque, F.R., 153
Hare, P.G, 7, 8
Harper, A., 167, 168
Harper, M., 108, 116, 175, 202
Hartarska, V., 19
Hasan, M. R., 19
Hashemi, S.M., 66, 83, 95, 202
Havan, C., 58
Hazell, P.B.R., 117
Hearteveld, K., 125
Heemskerk, M., 203
Heidhues, F., 4, 19, 41, 55
Henderson, K., 113
Henry, S., 203
Hettige, H., 161
Heussen, H., 95
Hickson, R., 169, 170
Hill, G.P., 170
Hine, S., 20
Hirschland, M., 84, 128
Ho, D.P., 45
Hock. C., 20
Hoff, K., 61, 183
Hofmann, A., 20
219
Hokenson, M., 109
Hollinger, F., 117
Hopkins, J., 184
Hoque, Hafiz Al Asad Bin, 168
Hospes, O., 3, 129, 153, 168
Hossain, I., 123
Hossain, M., 21, 66, 84, 95, 134
Huda, R., 96
Huddle, D.L., 129
Huizinga, H., 138
Hulme, D., 21, 22, 168
Hunter, W.C., 92
Huppi, M., 168
Huq, M.A., 185
Hushak, L.J., 129, 157
Hyun, K.N., 129
I IABD, 22, 49
IFAD, 3, 6, 23, 42, 43, 51, 61, 69, 70, 84,
93, 95, 100, 102, 117, 160, 209
IFPRI, 8, 9, 45, 55, 56, 63, 64, 66, 78, 85,
95, 144, 148, 156, 160, 178, 191, 205,
211, 215, 216
Ikpeleu, I., 96
IMF, 102, 104, 131, 134, 203, 207
Iqbal, F., 24, 183
Islam, R., 153
Izumida, Y., 9, 24, 84
J Jackelen, H.R., 66
Jaffee, D., 203
Jahangir, A., 24
Jain, P.S., 66, 192
Jansson, T., 24
Japarov, A., 27
Jaramillo, M.F., 203
Jazayeri, A., 24
Jellicoe, M.R., 129
Jensen, R.T., 189
Jodhka, S.S., 153
Johnson, S., 63, 169, 170, 199
Johnston, B.F., 213
Johnston, C., 6
Johnston, D.E. Jr., 99
Jolly, R.W., 68
Jonakin, J., 154
Jones, J.H.M., 183
Juliana, A., 18
K Kabecha, W.W., 154
Kabeer, N., 66, 67, 84, 199, 204
Kaboski, J., 85
Kalia, S.K., 117
Kamal, M.M., 204
Kamewe, H., 96
Kanathigoda, S., 111
Kane, E.W., 117
Kannapiran, C., 25, 67
Karduck, S., 103, 176, 178
Karlan, D.S., 180, 204
Karmakar, K.G., 67
Kashuliza, A.K., 154
Kasybekov, E., 27
Katzin, M.F., 154
Kawai, S., 25, 187
Kelly, R., 132
Kessler, D., 192
Ketkar, K.W., 96
Khadka, S., 177
Khalily, M.A.B., 96, 129, 140, 141, 147, 168,
204
Khan, M.H., 109
Khan, R.A.R., 67
Khan, Z.H., 68, 140
Khandker, S.R., 67, 68, 73, 78, 113, 117,
140, 141, 198
Kilby, P., 213
Kilima, K., 119
Kilkenny, M., 68
Kimbombo, R., 3
Kimuyu, P.K., 150, 169
Kirsten, M., 194
Kirton, C., 167
Klaehn, J., 125, 129
Klein, B., 183
Kloeppinger-Todd, R., 33, 118
Klonner, S., 169
Knopp, D., 200
Kobb, D., 154
Kochar, A., 68, 85
Koning, A., 96
Kotaiah, P., 25
Kovsted, J., 170
Krafft, N.J., 25
Krahnen, J.P., 96
Kranton, R.E., 154
Kropp, B.W., 40
Kropp, E., 40, 96
Kuasakul, N., 95, 182
Kui, Ng Beoy., 154
Kula, O., 25, 204
Kumar, A., 68, 205
Kuo, Ping-Sing., 170
Kurian, N., 112
Kurtz, D.V., 170
Kydd, J., 9, 152
L Lacoste, J-P., 130
Ladman, J., 180
Lalarukh, F., 96
Lamberte, M.B., 1, 25, 92, 155
Lang, L.H.P., 80
Lanjouw, P., 64
Lapenu, C., 26, 85, 205
Larson, D., 206
Larson, W, 124
Latif, M.A., 68, 130
Lau, L., 115
Lava, A., 155
Ledgerwood, J., 85
Lee, N., 26
Lele, Uma, 187
Lemke, U., 9
Lensink, R.W., 182
Lepp, A., 97
Levenson, A.R., 170
220
Levin, M.D., 205
Levy Yeyati, E., 97
Lewis, D.J., 205
Lin, J., 115
Lindquist, G., 78
Ling, Z., 69
Lipton, M., 69, 205
Lipton, Merle., 205
Littlefield, E., 85, 86
Llanto, G.M., 14, 26, 105
Loayza, N.V., 155
Lopez-Murphy, R., 130
Loury, G., 165
Lubbock, A., 43
Lund, S., 152
Lundvall, K., 150
Luo, X., 115
Lyk-Jensen, P., 170
Lynch, E., 182
M Madeley, J., 97
Magill, J., 187
Mahajan, V., 26, 27
Mahmood, M., 62
Mahmood, R.A., 149
Mahon, C., 69
Maimbo, S.M., 130
Malchow-Møller, N., 188
Malcolm, L.R., 61
Malkamaki, M., 169
Mallorie, E., 69
Maloney, C., 27
Manash R.G., 189
Manig, W., 192
Manndorff, H., 27
Mansuri, G., 155
Markson, T., 109
Marr, Ana., 193
Marthans J.J., 89
Martino, L.D., 27
Martokoesoemo, S.B., 86
Marx, M.T., 96, 194
Masciandro, D., 181, 183
Mason, K., 155
Masson, P., 131
Matin, I., 84, 86, 146, 147, 161
Mattesini, F., 28
Matthews, B., 132
Maurer, K., 97, 131, 176
Mauri, A., 27, 28, 86, 131, 132, 155
Mavrotas, G., 130, 132
Mayoux, L., 205
McCord, M.J., 206
McGregor, J.A., 70
McKernan, Signe-Mary,, 193
McMillan, J., 156
Meerman, J., 77
Meghir, R., 192, 193
Meles, F., 156
Mellor, J.W., 28
Mesbah, D., 70
Meyer, R.L., 28, 29, 30, 32, 33, 39, 70, 71,
118, 129, 141, 147, 152, 156, 157, 183,
204, 206
Micco, A., 97, 109
Mikael S., 166
Miller, H., 87
Millimet, D.L., 198
Minggao, S., 37
Minsky, H.P., 206
Miracle, Diane S., 132
Miracle, M.P., 132
Mishra, A., 70
Mishra, D.P., 187
MkNelly, B., 98
Moll, H.A.J., 31, 150
Monteil, P.J., 156
Montgomery, R., 168, 183
Montiel, P.J., 207
Morduch, J., 141, 156, 207, 208
Moser, C., 208
Moskowitz, D.Z., 193
Mosley, P., 21, 71
Moyes, R.T., 25
Moyo, S., 152
Msewa, F.D., 170
Mugume, A., 118
Mukherjee, J., 133
Mulder, A., 33, 36
Mule, N., 169, 170
Muraki, T., 97
Murray, J., 187
Murshid, K.A.S., 157
MUSCCO, 170
Mushinski, D., 97
Mutunhu, T.E., 98
Mwachang'a, M., 119
Mwangi W., 169
Mwangi, W., 170
Mwega, F.M., 157
N NABARD, 78, 100, 104, 175, 176, 177, 178,
179, 180
Nabi, I., 31, 37
Nagarajan, B.S., 32
Nagarajan, G., 29, 32, 33, 39, 70, 87, 152,
156, 157, 208
Nair, A., 33, 118, 177
Nanda, P., 71
NaRanong, V, 37
Narayanasamy, N., 32
Navajas, F., 130
Navajas, S., 71, 184
Nayar, C.P.S., 157, 193
Nazarea-Sandoval, V., 149
Nehman, G.I., 57
Nelson, C., 98
Neshamba, F., 193
Nguyen T.H., 153
Ngwira, A.B.A., 194
Nissanke, M., 161
Northrip, Z., 93
Norton, A., 203
O Ogunrinola, I.O., 157
Okoye, C.U., 71
Oladeji, S.I., 157
Olivares, M., 157
221
Olubiyo, S.O., 170
Onchan, T., 157
Onumah, G., 33
Osmani, L.N.Khan., 72
Osuntogun, A., 133
Otero, M., 133, 161, 208
Otsuka, K., 53
Outtara, K., 98
Owens, J., 98, 171
Owoeye, T., 171
P Padmanabhan, K.P., 72
Pagura, M., 34, 142, 194
Painter, J., 98
Pallage, S., 151
Pamod, B., 96
Pande, R., 90
Pandit, V., 162
Panizza, U., 97, 109
Parhusip, U., 194
Parikh, T., 35
Park, A., 35, 72
Patten, R.H., 91, 99
Paxton, J.A., 147
Peachy, S., 99
Pearce, D., 35, 36, 72
Pearce, D.H., 110
Pederson, G., 18
Pender, J.L., 73
Perrett, H., 12
Petersen, G., 37
Ping, X., 37
Piprek, G.L., 53, 54
Pitt, M., 73, 193, 198, 209
Poapongsakorn, N., 99
Pomareda, C., 117
Porteous, D., 143
Poulton, C., 9
Pradhan, R.K., 209
Preedasak, P., 37
Proenza, F.J., 49
Puhazhendi, V., 37, 177
Q Quinones, B.R., 38, 99, 96
Quinsin, Mao, 216
Quirion, M., 186
Qureshi, S., 31, 37
R Rafiquddin, Q., 91
Rahman, A., 158
Rahman, Aminur., 73
Rahman, Atiqur., 209
Rahman, R.I., 73, 133, 209
Rahman, S.A., 185
Rajaraman, I., 166
Rajshekar, D., 73, 75
Ramachandran, S., 32
Ramola, B.G., 26
Randhawa, B.K., 14, 39, 101, 214
Rao, G., 100
Ravallion, M., 209
Ravicz, R. M., 143
Raymond, F., 188
Reardon, T., 117, 209
Reed, L., 38, 62
Reijmerink, J., 100
Reiling, P., 38
Reille, X., 100
Remenyi, J., 73
Reynolds, C.W., 210
Rhee, B, 126
Rhee, C., 126
Rhyne, E., 66, 138, 208
Richardson, D.C., 133, 210
Riedinger, J.M., 38
Riley, A.P., 66
Roberts, R., 118
Robinson, M.S., 38, 87, 100, 133
Rodolfo Q., 121
Rodríguez-Meza, J., 71
Roe, A., 99
Rogers, C., 171
Rose, El., 74
Rosenberg, R., 74, 83, 86, 187
Rosengard, J.K., 99
Rosenzweig, M., 113
Roth, J., 158
Rouse, J., 158
Roy, D., 191
Roy, M.K., 91
Rozner, S., 118
Ruben, R., 39, 119
Russell. T., 203
Ruth P., 128
Rutherford, S., 123, 133, 134, 158, 159,
171, 172, 210
Rutten, L., 88
S Sacay, O.J., 39, 101
Sadoulet, E., 76
Safavian, M., 39
Sagrario L.F., 163
Saha, B., 194
Salas, A., 159
Samiei, H., 131
Sanderatne, N., 39, 159
Sangui W., 72
Sankaranarayanan, R., 101
Santomero, A.M., 211
Sapienza, P., 202
Satish, P., 40, 101, 177
Satyasai, K.J.S., 37
Schmidt, P., 101
Schmidt, R.H., 40, 74, 96
Schrader, H., 172
Schreiner, M., 41, 71, 134, 135, 144
Schrieder, G.R., 41, 55, 101, 187
Schuler, S.S., 66
Schulz, M., 160
Seibel, H.D., 42, 43, 44, 96, 97, 101, 102,
103, 160, 172, 176, 177, 178, 194, 211
Selvavinayagam, K., 44
Sen, B., 134, 184
Senanayake, S.M.P., 45, 159
Shah, D.P., 104
Shah, T., 187
222
Shahiduzzaman, M., 95
Shakya Jan, R., 163, 174
Shams, M.K., 74
Shanmugam, Bala., 160, 172
Sharma, M., 41, 45, 55, 56, 64, 76, 144,
147, 156, 160, 178, 207, 211, 216
Sharma, N., 64
Sherstha, B.P., 172
Shrader, L.W., 144
Shrestha, P., 163
Shylendra, H.S., 104
Siamwalla, A., 74, 99
Simanowitz, A., 199
Simkhada, N.R., 172
Singh, A.S., 108
Singh, S., 74
Sinha, S., 161
Sisodia, N., 45
Sitorus, D., 104
Skees, J., 46, 119
Sluijs, J., 47
Sobhan, R., 110, 148, 211
Soyibo, A., 194
Srinivas, H., 161, 194
Srinivas, P.S., 104
Srinivasan, G., 104
Srinivasan, R., 46, 178
Sriram, M.S., 46, 82
Srivastava, P., 3, 179, 195
Stack, K., 98
Staehle, M., 164
Start, D., 211
Staschen, S.J., 172
Stearns, K., 159, 161
Steel, W.F., 161, 212
Steinwand, D., 74, 110, 111
Stiglitz, J.E., 74, 183
Straub, S., 161
Sundaram, K., 162
Swaminathan, M., 145
Swamy, A.V., 154
T Tacis, 75
Tang, Shui-Yan., 162
Tankha, A., 179
Tanzi, V., 134
Taylor, A.M., 213
Temu, A.E., 119
Teranishi, J., 184
Theesfeld. I., 101
Thillairajah, S., 47
Thilmany, D., 20
Thomas, T.H., 154
Thomson, J.B., 80
Thorat, Y.S.P., 90
Tillette de Mautort, A., 120
Timberg, T.A., 162
Tiscon, G.S., 213
Tomich, T.P., 213
Townsend, R.M., 47, 85
Treich, N., 164
Tsai, K.S., 162
Turtiainen, T., 172
U Uddin, M. Salim., 104
Udell, G.F., 92
Udry, C.R., 7, 124, 213
UNCTAD, 120
UNDP, 74, 75
Unnevehr, L.J., 162
USAID, 3, 4, 5, 12, 14, 15, 16, 24, 25, 33,
38, 46, 47, 69, 70, 78, 87, 90, 98, 105,
106, 110, 118, 120, 123, 125, 134, 135,
138, 153, 197, 200, 206, 208, 211, 213,
214
V Vaessen, J., 75
Valdes, A., 117
Valenzuela, L., 111, 185
Van den Berg, M., 119
Van der Brink, R., 173
Van Empel, G.J.J.M., 47
Van Greuning, H., 214
Varghese, A., 75
Vittas, D., 197, 215
Vives, A., 49
Vogel, R.C., 1, 25, 48, 104, 105, 106, 135,
138, 173, 185
Von Braun, J., 69
Von Pischke, J.D., 1, 48, 75, 121, 135, 145,
153, 173
Vonderlack R.M., 135
Vyasulu, V., 73, 75, 105, 171
W Wadhva, C.D., 105
Wai, U Tun., 162
Wajananawat, L., 95
Wampfler, B., 111
Wanjau, K., 169
Warning, M., 76
Waterfield, C., 135
Waters, E., 5
Watson, A., 61
Webster, L., 97, 162
Wehnert, U., 174
Weil, D., 126
Weiss, A., 74
Wellman, L., 95
Wenner, M.D., 48, 49, 50, 108, 112, 121
Wenzelburger, J., 200
Westley, G.D., 105, 106, 121, 122
Westley, J., 209
Wickramanayake, J., 76
Wiedmaier-Pfister, M., 110
Wieland, R., 122, 159
Wilson, K., 179, 180
Wise, H.M., 135
Wisniwski, S., 127, 133, 135
WOCCU, 15, 46, 69, 70, 125, 187
Women's World Banking., 145, 182
Woodruff, C.M., 156
World Bank, 3, 4, 6, 14, 26, 31, 33, 35, 36,
37, 39, 44, 47, 50, 51, 52, 53, 54, 60, 65,
67, 74, 75, 85, 87, 91, 95, 97, 101, 102,
104, 110, 112, 116, 117, 118, 122, 123,
223
126, 133, 138, 140, 143, 145, 150, 153,
155, 156, 162, 168, 172, 173, 177, 179,
181, 188, 193, 196, 197, 205, 208, 209,
212, 214, 215
Wright, G.A.N., 88, 135, 136
Wu, D.T.H., 174
Wynne-Williams, J., 52
X Xu, Z., 62
Y Yadav, S., 53
Yanovitch, L., 98
Yaron, J., 18, 53, 54, 91, 97, 106, 195
Yazdani, S., 122
Yin, W., 180
Yoichi, Izumida., 216
Yotopoulos, P.A., 163
Young, R., 106
Yunus, M., 215
Z Zain, D., 162
Zaman, H., 136, 215
Zander, R., 3
Zapata, G., 136
Zappacosta, M., 107
Zeitinger, Claus-Peter, 74
Zeller, M., 9, 24, 45, 54, 55, 56, 64, 76, 144,
147, 148, 160, 195, 215, 216
Zhixiong, Du., 216
Zhong, X., 37
Zhongfu, M., 56
Zhongyi, J., 69
Zingales, L., 202
224